India : Apparel Prices Likely to Drop Following Budget Concessions

Garment prices are likely to drop, while margins of textile companies may improve after finance minister Jaswant Singh cut excise duties on all fabrics and garments by 2% to 10% in the ’03-04 Budget.

The minister also announced a cut in central sales tax to 2% from 4%, benefiting companies such as Indian Rayon, Raymond, Pantaloon Retail (India) and Zodiac Clothing. The margins of these companies have been under pressure due to the recession in the textile sector.

“We expect the prices of branded garments to come down by 2-3%. Excise duty reductions will have a favourable impact on the profitability in the long-run,“ said Kishore Biyani, CTO, Pantaloon Retail India. Prakash Nedungadi, president, Madura Garments feels that the net reduction on the cost would be around 1.2% and that is very limited.

Industry sources said, the measures will benefit only the big players as the Budget has scrapped the deemed credit facility (partial refund of excise duty paid), mainly used by small players. “The benefits of excise duty reduction will be offset by the withdrawal of the deemed credit facility,” says Rahul Mehta, former chairman Clothing Manufactures Association of India.

The industry feels there will be an overall reduction in raw material prices.

The Budget has reduced the excise duty on polyester filament yarn prices to 24% from 32%, which is expected to bring down polyester fabric prices.

Since there is a general reduction in customs duty, imports of cheap fabrics and garments will increase from countries such as Korea, China and Hong Kong.

The move to exempt non-profit organisations selling garments from the ambit of excise duty has been criticised by players who believe that it could be misused. “It could result in misuse of exemption provisions,“ said Anees Noorani, MD, Zodiac Clothing.

The Budget has not doled out any measures to boost exports. Industry officials were expecting some measures since garment exports have grown by about 15% during the past few months. The industry’s demand of restoration of Section 80 HHC of the Income Tax Act (exemption of export profit from income-tax) has fallen on deaf years.

The exemption is crucial for the industry since it faces tough competition from neighbouring countries such as Pakistan and Bangladesh.

Industry sources said export margins are under pressure due to the appreciating value of rupee against the dollar and the overall increase in costs. There has been a steady increase in manufacturing costs as prices of various inputs, such as fuel, have gone up.