Indian Hosiery Industry – corrective measures needed for its survival

Indian Hosiery Industry – corrective measures needed for its survival

This is in continuation to our letter of last month and numerous other representations made
to you regarding the difficulties faced by Indian hosiery industry due to imposition of 10.3%
Mandatory Excise Duty on Branded Readymade Products. The matter has further worsened
with the allowance of duty free import of readymade garments / hosiery products from
Bangladesh.

We from the KARNATAKA HOSIERY AND GARMENT ASSOCIATION have been
continuously writing about the fledging problems and seeking your kind attention on the above
two issues which has had a severe damaging effect on the Indian hosiery industry. It has not
only led to continuous slowdown, loss of businesses – but has also resulted in many players
having shut down their enterprises due to lack of opportunities coupled with mounting cost of
production, growing pressure on their capital investment among others.

The Government must take a relook on the issue of Mandatory Excise Duty on branded
products - and in all fairness rollback this Duty to save our garment industry from the brink of
total devastation. The Government ought to understand that its policies may generate revenues
for their coffers, but they are certainly not conducive to growth of this industry. It must also
realize that unless something is done in the very near future, lakhs of workers (40% of which
are women) will lose their jobs, their livelihood and face extreme difficulties. The question of
their survival will be at stake – in these trying times.

On the other hand, the allowance of duty free import of readymade garments / hosiery products
from Bangladesh has dealt another disastrous blow to the hosiery business of our country. The
Government must understand that the apparel manufacturing industry of Bangladesh is far
more competitive than its Indian counterpart. The Indian apparel industry’s share of growth has
been quite low and can be gauged from the fact that in the last six years (2005-2011), India’s
apparel exports increased from $8.63 bn in 2005-06 to $12.5 bn in 2010-11 against 18% growth
recorded by garment exports from Bangladesh during the same period. Furthermore, their
garment exports increased from $7.9 bn in 2005-06 to $17.92 bn in 2010-11 and are expected
to $25bn as per targets set by them within the next 3 years.

It must also be noted that:

a. Labour cost is one of the chief components of total cost in apparel manufacturing.
Bangladesh’s labour cost is about 1/3rd of wages paid to a garment worker in India.
b. The lower size and scale of Indian garment factory is chiefly due to inflexible labour
policies, which stress upon security than availability of employment.
c. Indian knitting and processing rates are 40% higher than Bangladesh.

In our earlier memorandums, we have pointed out that our industry is wrought
with multiple problems – and with the imposition of both the mandatory excise duty and duty
free imports of readymade garments from Bangladesh, the matter has gone from bad to worse.
The product processing cost has gone up tremendously, but there is scope of increasing the
price of the products due to the possibility of customers shying away from the markets. This has
started to hurt the local industry very badly, while our markets are getting flooded with cheap
Bangladeshi products. Even if we wanted to match them – it would be impossible to do so,
given the limitations.

"YARN” which belongs to the organized sector with only about 1000 mills has been
exempted from the purview of excise duty? Whereas, the garment sector – which is extensively
disorganized / defragmented with lakhs of units have been brought under the excise regime.
If revenue was the primary / only contention of Government, taxing the Yarn industry would
have generated far more revenue than what is being generated through the garment industry.
Unfortunately, this move by the Government has had a retrograde effect and has disturbed the
operations of players in the industry - by upsetting its costs & business opportunities.

Moreover, the removal of 10.3% Excise Duty on branded products is an absolutely
necessity for saving the Indian garment industry whose products are essentially meant of the “Aam Aadmi”.
As such it becomes our moral responsibility to cater to the needs of the common populace, without putting
any financial burden on them

Notwithstanding any other challenges and / or factors, the above two issues are having a
direct / indirect effect on the Indian garment Industry - resulting in scores of workers losing their
jobs and / or are being retrenched due to no fault of theirs. In fact, growth has now become a
secondary matter, given the question of survival for many players in the tiny and small segment
of this industry. It goes without saying that unless corrective measures are taken and at the
earliest, our industry will not be able to survive (leave alone growth) amidst all the challenges
and difficulties.

To explain the matters further and more importantly the gravity of the situation, we
would like to come and meet you for apprising the real situation. And of course your help and
kind intervention would go a long way in finding the right solution, which can provide avenues
for survival and adequate growth of our industry. We would like to reiterate that we are not
averse to tax collections, but it should not come in the way of our survival – our existence.

We look forward to getting an audience from your end at the earliest – and a chance for us to
tell you where we stand for furthering our discussions on the above.

Thanking you,
Yours faithfully,

SAJJAN RAJ MEHTA

EX.PRESIDENT..KARNATAKA HOSIERY AND GARMENT ASSOCIATION
CHAIRMAN..TAXATION COMMITTEE
09845501150