Retail manufacturers and traders of readymade garments have asked the government to cut excise duty from the existing 10 per cent to one per cent.
The readymade garment industry is going through a rough patch, as weak demand has resulted in a 17 per cent drop in sales over the past nine months.
The poor scenario can be gauged from the fact that the industry, despite advancing and prolonging discount offers to offload existing stocks, continues with Rs 1,400 crore worth of inventory till date.
To bail out the sector from the current situation, the Clothing Manufacturers’ Association of India (CMAI), the apex industry body with a membership base of 27,000 manufactures, retailers and exporters, has urged the government to cut excise duty rates.
“The duty has proved a major setback, overturning the direction of the entire industry. The domestic industry has shown tremendous growth over the past 8-10 years. However, for the first time in 2011-12, a decline of over 17 per cent or Rs 1,725-crore has been estimated due to high inventory levels. Manufacturers and retailers are left holding additional inventory worth Rs 1,400 crore. To get rid of the inventory, retailers are offering huge discounts of more than 40 per cent on maximum retail price resulting in an estimated loss of Rs 4,000 crore,” Rahul Mehta, president of CMAI wrote in a letter to the ministry of commerce.
“The readymade garments industry witnessed 35 per cent compound annual growth rate before the excise duty was levied in the last Budget. Since then, the industry slipped with massive impact on sales. Since manufacturing cost has been rising sharply, due to a dramatic rise in raw material and labour cost, the industry needs a breather from the government in the form of excise duty cut,” the letter said.
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Echoing similar sentiments, Rakesh Biyani, joint managing director of Pantaloon Retail, one of the largest readymade garments retailers, said, “The excise duty levy has had a negative impact on retail sales of readymade garments. The overall profitability of those who are exclusively in apparel retail has come down significantly.”
In the past year, apparel prices shot up by 10-15 per cent as retailers were forced to pass on the rise in raw material price and excise duty to consumers.
Although, raw material prices have moderated in the past few weeks, resulting in retailers cutting apparel prices by five per cent, this is not enough for the industry to overcome the downward sentiment.
“High raw material prices, coupled with excise duty, forced retailers to increase prices by 25 per cent, which had an impact on volumes. We have been asking the government to reduce the excise duty on readymade garments to lessen this impact,” said Suresh J, MD of Arvind Brand & Retail.
The industry also faced a big setback this financial year on the government’s nod to allow duty-free imports from Bangladesh.