Tiruppur faces heat from Bangladesh, Sri Lanka

Close to 7% dip in exports, partial shutting down of several micro and small enterprises and job loss for thousands of workers, the multi-crore knitwear industry in Tiruppur in Tamil Nadu, which was hit hard due to the twin blow of demonetisation and introduction of GST, is slowly limping back to normalcy after the Union Government began paying Input Tax Credit (ITC) in phases.

But, the manufacturers and exporters in Tiruppur seek Centre’s intervention in resolving issues of the sector which is facing tough competition from their counterparts in neighbouring Sri Lanka and Bangladesh, who enjoy duty-free access to the European Union (EU) and US – the main buyers of garments.

Exporters say since the aforesaid countries and others like Cambodia and Ethiopia have free access to major markets -- their garments are much cheaper than those from Tiruppur, which are levied 9% entry tax. Raja M Shanmugham, President of Tiruppur Exporters’ Association (TEA), told DH that none of the exporters in the city were opposed to introduction of GST, but were unhappy with the way it was implemented. “Indian manufacturing sector is dependent on micro and small establishments and when macro-economic changes are brought in by the government, these firms need supportive hand-holding system because many of them work on hand to mouth basis. No government can thrust the system without equipping the very people who will use it,” he said.

The export industry which was growing at more than 10% every year reported a 7% dip for the first time since 2011, resulting in loss of a whooping Rs 2,000 crore. The exports, which were valued at Rs 26,000 crore in 2016-2017, fell to Rs 24,000 crore in 2017-2018 and the domestic sales stood at around Rs 18,000 crore.

“Good part of the working capital of these micro and small industries got stuck with the government due to non-release of ITC for seven months. This forced many firms to increase their borrowing capabilities resulting in the crisis. Since the government has begun reimbursing ITC since February, the industry is slowly recovering from the loses,” he said.

Agreeing with Shanmugham, leading industrialist R Premchander said the crisis has now eased with release of ITC, but gives his own figure of the losses incurred in 2017-2018. “The industry was growing at 10% every year, but this year it saw a 7% decline. So, in my calculation, the loss is 17% including the growth which we would have achieved if not for GST,” Premchander, CMD of Amarjothi Spinning Mills Limited, told DH.

He also points to the “dangerous trend” of industries from Tiruppur migrating to Sri Lanka due to better business atmosphere and free access to top markets like the EU.

“For the government, Tiruppur does not exist at all. We are not even on their map. Many companies have shifted from Tiruppur to Sri Lanka. We can arrest the trend only if there is support from the Centre. We need better, rather free access to EU and other major markets for which the Government should conclude FTAs and operationalise them,” Premchander said.

Another blow for the exporters came in the form of slashing of incentive duty drawback to 2% from 7.6% last year, which again puts additional financial burden on the firm.

Access to international market

V Balasubramaniyan, CEO of Enkay Enterprises, which exports polyester sewing threads, says free access to many international market would help exporters like him to do better business contributing to India’s vibrant economy.

“The GST has hit the industry very much resulting in loses for many firms. We all were hit due to levy of higher slab of GST and increase in working capital. I am able to do business only because the dollar rate is good now,” he said. Another problem that industries face, according to Balasubramaniyan, is the decision by the Central Board of Excise and Customs to revise the duty drawback rate to 1.5% from 10.3% during the pre-GST regime.

“This anomaly needs to be corrected if the clusters are to be saved,” he said.

K S Babuji, general secretary of the South India Collar Shirts and Innerwear Small Scale Manufacturers Association (SISMA), said the differential tax slab on the raw materials and the product has forced many job work units and micro enterprises to shut their shops.

Closure of units

“More than 2,100 such units have been closed since the introduction of GST. Many people who were running the units have closed their ventures and are now working as supervisors in big firms,” he said, adding that when VAT was in force, such firms received 4% of the 5% VAT levied as incentive.

“It has now been taken off. How do we survive?” he asked. According to local estimates, 10,000 to 15,000 people lost their jobs due to introduction of GST, though the TEA said it can’t be quantified.

Shanmugham wants the government to bring back incentives and announce a compensatory package for the knitwear industry and work on war footing to insulate the industry from the loses.

“Once buyers go out of the country due to higher prices, it is very difficult to bring them back. So, government intervention now would save the industry from further loses,” Shanmugham said.