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The
possibility of job losses, running into thousands,
should make it a priority sector in this year’s
Budget. The year 2007 was a particularly bad year what
with the Indian rupee appreciating almost 14% against
the US dollar.
While the Chinese yuan had appreciated only 6.4%
against the US dollar and the Bangladeshi taka 2.41%,
the rupee’s rise has wiped out the already
wafer-thin margins enjoyed by apparel exporters. The
relief given in the form of a duty drawback of 11%
(capped at Rs 61 per piece) for cotton garments and
11.2% (capped at Rs 58 per piece) on blended garments
is only a marginal help, say industry experts.
The industry, especially the smaller players, could be
on the brink with many units down-sizing and reports
of job cuts flowing in thick and fast from not just
Tirupur but even Bangalore, Chennai and Gurgaon.
Estimates indicate that more than 30,000 jobs have
already been lost. “We are literally wobbling along.
In 2005 we grew a healthy 30%, which slipped to 12% in
2006 and would be negative in 2007,” said Rahul
Mehta, president of Clothing Manufacturers Association
of India (CAM).
It was this sudden rise in the rupee value that forced
agencies like the Tirupur Exporters Association (TEA)
to suggest a dual exchange rate. The exporters incur a
cost while hedging.
TEA argues that dual exchange rate can be introduced
by which Rs 42 per dollar can be fixed for exporters
for one year. The suggestion may appear outrageous,
but the situation on the ground is turning grave for
many entrepreneurs and scores of families dependant on
the industry.
Rajan Hinduja, executive director at Gokaldas Exports,
India’s largest apparel exporter, calls for urgent
productivity improvements for sustainable growth. This
is reflected by several of his peers who believe the
business has chugged along too long brushing aside
productivity concerns and labour reforms. Exporters
say some bold moves on the sensitive subject of labour
issues would only bolster the industry. “Even
lay-offs, for instance, could happen on the LIFO (last
in, first out) basis, thus ensuring that the process
doesn’t impact all,” said one exporter who
requested anonymity.
Interestingly, apparel exporters have promised to
implement a minimum job guarantee scheme on the lines
of the National Rural Employment Guarantee (NREG)
scheme. Under this proposal, a minimum 200 labour days
can be assured, although such a plan can be
implemented only if the labour laws facilitate units
to lay off employees.
Nevertheless, any short-term relief is welcome for a
sector which only a few quarters back looked
unflappable. Not surprisingly, the industry may be
expecting some some softening in the tax regime. “We
continue to export taxes, notably local taxes, which
account for anywhere between 4% and 6%. Indian
exporters should be reimbursed these costs to ensure
they remain competitive globally,” says Mr Mehta.
Then there is the issue of 12.36% service tax on
rentals. “The tax is even payable when units are
located in industrial sheds,” complains a Bangalore-based
exporter. Further, the clamour for reducing customs
duty on man-made fibres remains. Although India ranks
among the top-four cotton producers, close to
two-thirds of the production and exports are based on
man-made fibres.
Source
: Economic Times - Gurgaon, Haryana, India, dated
12/02/2008
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