Garment exports fall highest in percentage term in October on GST woes

Garment exports hit hard in October as order bookings didn’t happen due to the ambiguities relating to GST. The fall is one of the highest in percentage term, the worst performing export category in October, as per the data with the union commerce ministry.

With readymade garment exports plunging 40.7 percent on a year-on-year (yoy) basis to Rs 5,398 crore in October, exporters have blamed the slump on financial crunch due to the delay in getting GST refunds and reduction in duty drawback rates under the new regime.

Acccording to Raja M Shanmugham, president, Tirupur Exporters’ Association (TEA), garment exports fell 39.2 percent y-o-y in dollar terms to $829.4 million during the month. GST is the main reason for the fall in exports.

Incidentally, readymade garment exports increased 4.5 per cent y-o-y in rupee terms to Rs 59120.7 crore in the first half (H1 or April-September) of 2017-18. Exports gained 8.9 percent y-o-y in dollar terms to $9.2 billion during H1 of 2017-18.

Shanmugham stated that they are in a disadvantageous position against their competitors. GST would impact their profit margins by 5-6 per cent. Though exports declined between June and August, the drop was not quite big.

Exporters could not take advantage of positive trend in global trade due to serious cash crunch, said A Sakthivel, regional chairman, Federation of Indian Export Organisations (FIEO), southern region.

As per the industry officials, refund claims could not be settled due to system-related issues including the need for matching various heads of different returns in a majority of the cases, he said referring to the difficulties faced by the exporters in getting GST refunds for tax paid on exports during July and August.

The duty drawback for cotton ‘T-shirts’ was reduced from 7.7 percent to 2 percent with the ceiling per piece being brought down from Rs 36 to Rs 9 with effect from October 1.

With the advent of GST, exporters can claim drawback only for levy of customs. Though exporters can claim input tax credit for excise duties and service tax under GST, the refunds would be minuscule.