Garment exporters have lost close to Rs 325 crore (Rs 3.25 billion) in about five weeks since the introduction of the weight-based duty drawback rates from January 19, 2005.
Exporters have said they will not be able to absorb such heavy losses as they had already finalised contracts with overseas buyers on the basis of previous existing rates, and may lose the competitive edge to countries like China and Bangladesh.
"The sudden reduction of 60 per cent has hit the bottom line of companies. A large number of companies are turning back as exporters are not able to offer competitive prices or do not have the capacity,'' Sudhir Dhingra, managing-director, Orient Craft, told Business Standard.
"Normally, the duty drawback rates are revised and announced during the month of June on the basis of Budget proposals. This sudden revision has hit the exporters hard,'' said Garments Exporters Association Executive Secretary Surinder Anand.
Although the finance ministry has constituted a committee to look into the issue of duty drawback rates, the Apparel Export Promotion Council chairman A Shaktivel has written to the ministry to restore previous duty drawback rates with a minimum deduction till the committee comes out with its recommendations.
According to estimates made by the AEPC, the amount of duty drawback reduction works out to almost 8.37 per cent of the export performance in just 29 working days -- between January 1, 2005 to February 28, 2005.
"This is indeed a very substantial element in the performance of the ongoing contracts and for seeking fresh orders for the next season,'' Shaktivel has stated in the communication.
Exporters have pointed out that the new rates discourage value-added exports. For one, the new rates do not distinguish between various counts, finishes, trimmings and embellishments.
The new rates also do not distinguish between garments, which are subject to special washes like enzyme wash, where the chemical costs are very high, and the actual duty suffered, which is almost double from the normal garment.
According to Dhingra, the government was "frittering'' away the opportunity that was opened by the ending of the quotas. "At a time when every government is promoting exporters by giving subsidy, the Indian government is crippling the industry,'' he said.
Industry experts pointed out that the projected target of exports worth $50 billion by 2010 might fall short going by the present rate of investment in infrastructure.
"The textiles and garment industry in China gets a subsidy of close to 30 per cent, as a result of which exports have grown to $25 billion. Such growth will not be possible here unless the government gives support,'' an exporter said.
