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Interview| Rising raw material costs, liquidity crisis biting apparel exporters amidst boom in global orders: AEPC Chairman Narendra Goenka

Expected to hit $20 billion in FY23, apparel exports are poised for historic growth, Goenka says. Completion of critical free trade agreements, currently under negotiations, is expected to supplement this.

January 28, 2022 / 10:15 AM IST
Apparel Export Promotion Council (AEPC) Chairman Narendra Goenka

Apparel Export Promotion Council (AEPC) Chairman Narendra Goenka

Even as the pandemic drags on, India’s apparel exports continue to rise in FY22, with even brighter prospects in the next financial year. However, the skyrocketing cost of domestically produced raw materials may prove to be a dampener, Narendra Goenka, chairman of the Apparel Export Promotion Council, told Moneycontrol in an interview.

Goenka, who is also managing director of Texport Industries, one of India’s largest apparel manufacturers, said that while the sector appreciates the schemes by the Centre to boost manufacturing capabilities, the lack of duty refunds and a persistent liquidity crisis has continued to make business tough. Edited excerpts:

The price volatility of raw materials had affected exports after the second wave. What is the situation now?

The biggest challenge being faced currently by downstream industries across the textile sector is the lack of stability in prices of raw materials. Prices of cotton yarn, for example, have gone up by 70-80 percent in the last year alone. Part of it is obviously due to the global commodities super-cycle, which has raised raw material prices across the board. But India is also the biggest producer of cotton yarn globally, so the advantage should have been with India.

On the other hand, Indian manufacturers have certain existing disadvantages as compared to their foreign competitors such as tariff barriers and higher cost of weaving here due to higher wages. So we are instead exporting our materials to competing nations. As a result, India’s exports of raw materials are up by an estimated 60 percent as compared to the pre-pandemic period. So essentially, raw materials are exported at the cost of the textile manufacturing industry, which produces value-added goods and is a major employment generator.

What is AEPC’s forecast for exports in FY22 and FY23?

We are on the cusp of very good growth in apparels. We have suggested to our industry colleagues to try and raise manufacturing capabilities to take advantage of the confidence shown by our international buyers. However, logistics challenges have continued. Despite this, in the current financial year, apparel exports are expected to reach $16-17 billion, which is a 10 percent increase over the pre-pandemic period. In FY23, exports are expected to touch $19-20 billion.

Is the recent pickup in exports partly credited to the existing schemes for the apparel sector?

The government has certainly announced a series of good schemes for the textile sector. The production-linked incentive (PLI) schemes for man-made fibres and technical textiles have been well received. Next week will be the last week for applicants to apply under the PLI and the list of accepted companies may be announced within a month. The final policy guidelines of the mega-textile park scheme (MITRA) were also announced in November, whereby seven mega-textile parks are set to be established in different states. Now, a lot of the states are actively pitching for it.

So now, India is on the verge of regaining its old textile glory, as it was back in the 70s and 80s. Major corporates based out of the US and Europe are also confident of the future of the apparel industry and we are looking to capitalise on this. However, a liquidity crunch caused by delays in processing credits under the RoSCTL scheme is holding back the industry.

What exactly is the RoSCTL issue?

The government provides duty-free scrips to exporters under the Rebate of State & Central Taxes and Levies (RoSCTL) scheme. These can be sold freely to pay for expenses. But currently, the demand for RoSCTL scrips has gone down because of changes in import duties and certain products being zero-rated. As a result, its value has fallen to 80 percent of its earlier price. An estimated Rs 4,000 crore-5,000 crore worth of scrips are currently lying unutilised in the apparel sector. Since RoSCTL is a refund of taxes paid that were not being covered under the GST regime, we have asked the government for cash refunds.

This will ensure that the refund is instant at 100 percent of the value, without procedural complications, wherein the cost to the exchequer remains the same. This can be given along with the duty drawback which is already credited to the exporters’ account directly by adding the component of RoSCTL as well.

What are the other main pre-budget suggestions made by AEPC to the finance ministry?

We have also requested that duty-free import of trimmings and embellishments be reinstated as it does not have any serious impact on the domestic industry or revenue foregone. At present, companies set up on or after October 1, 2019, which start manufacturing before March 31, 2023, are given the benefit of paying tax at 15 percent. Therefore, new units of existing manufacturing companies should also be made eligible for a concessional tax regime.

What is AEPC’s position on the array of FTAs currently being negotiated by the government?

Most of our competitors such as Bangladesh and Vietnam have the advantage of free-trade agreements with major markets. The Indo-UK free trade agreement (FTA), in particular, is expected to really benefit the apparel sector. While we would have loved to see the Indo-EU FTA being finalised first, the deal with the UK is also no mean feat.

Subhayan Chakraborty
Subhayan Chakraborty has been regularly reporting on international trade, diplomacy and foreign policy, for the past 6 years. He has also extensively covered evolving industry and government issues. He was earlier with Business Standard newspaper.