Readymade garments: threat from unbranded imports

By Ramnath Subbu

MUMBAI, MARCH 24. The next sunrise industry could have been garments as distinct from textiles if one were to go by the boom of last year when global brands flooded the Indian markets. The domestic industry was, till last year, seeing growth rates close to 35 per cent.

But the recent budget proposal to impose a 16 per cent excise duty on garments carrying a `registered brand name' could actually lead to a flood of imported unbranded garments even from countries such as China and Bangladesh.

The budget says that excise is applicable only to brands registered under the Trade and Merchandise Act (1958) which implies that only branded garments will come under the excise net.

Following the imposition of the duty, imported unbranded garments would be 20-50 per cent cheaper. While the manufacturers are thinking along the lines of a price hike for branded products, the price differential with the unbranded imports would be a big hurdle.

According to Mr. Vikram Rao, group executive president, fabrics and apparel business, Aditya Birla group, ``Import of fabric is now viable and we can ourselves buy unbranded garments at lower prices and sell them. There is very good quality Malaysian polyester cotton available from Bangladesh; polyester viscose is already available here. The excise duty impact would be two-fold - those having registered brands will be hit while those who have not yet received registration will not be impacted. The final impact could be 18-20 per cent at the retail level.''

The timing could not have been worse. The industry was virtually a sunrise industry and things have been quite hunky dory with many newer players and new brands having entered the market. However, once the price hikes come about, the future of the industry could be anybody's guess.

According to an industry source, ``it is quite amazing that at a time when a country like China is bringing down barriers for exports (no duties applicable) and with the WTO looming large, we need to increase our competitiveness but then we have to contend with this sort of situation. Last March, the branded garments sector looked good but Diwali 2000 was not so good and in fact, January and February 2001 have seen negative growth.

Mr. Anees Noorani, managing director, Zodiac Clothing Company, said, ``The position is still evolving. The initial position has been diluted with only those with registered brands coming under the ambit of excise and those who have applied and not registered are not included. It is dangerous as all sorts of foreign brands will now have a 16 per cent advantage over the domestic players. Also, several large Indian brands are not registered so this is in effect an injustice.''

According to industry estimates, while the Government would earn around Rs. 200 crores from the duty, it would end up spending as much as Rs. 180 crores in collecting this amount. The garment industry comprises 25 lakh units and employs 50 lakhs.

The industry's contention is that fabric constitutes around 60 per cent of the garment cost and that is already excisable so the additional 16 per cent is quite unnecessary. For now, the Government is collecting excise from registered brands.

Mr. Rahul Mehta, managing director, Creative Outwear, and chairman, AGREGI (Action group for the removal of excise on the garment industry), said members of AGREGI had met the Prime Minister and the Finance Minister. ``We have persuaded them to do a serious rethink. We are expecting either withdrawal of excise or a simplified form of excise structure.''

As such, the branded readymade shirts market is estimated at Rs. 2,000 crores and growing at around 10-12 per cent while the trousers market is estimated at Rs. 1,000 crores and growing at 30-35 per cent. Also, the market for casual wear is growing at around 30 per cent. Things are not so smooth anymore.

Mr. Mehta of AGREGI said growth rates for the current year are lower than expected and the scenario in the domestic market for the next couple of months could be grim. ``It is due to the general market sentiment and the sudden increase in availability of retail space and manufacturing facilities. Other factors include competition and a capacity increase in production. Even in exports, international competition has increased and there is slowdown in the U.S. economy.''

Mr. Rao of Aditya Birla Group said, ``The excise duty imposition could diminish market buoyancy and maybe the growth this year would be only 50 per cent of what was projected by the industry.

There could be some reason for cheer though. Following representations from various quarters of the industry and associations, the government may consider a partial roll-back of the proposal to impose 16 per cent Cenvat. Smaller players could benefit largely from this as the Government may consider bringing only those players with a minimum critical mass or turnover under the excise net. Questions have been raised regarding the wisdom of imposing excise duty for branded garments as larger brands in the menswear segment are not registered under the Copyrights Act. The Government's decision in this regard is eagerly awaited.

The women's branded apparel has caught the eye of most manufacturers. The women's wear segment is now around Rs. 2,000 crores and is expected to reach Rs. 5,000 crores in two years.

The Raymond group is planning to venture into the women's wear market within a year. Targeted at the middle and upper middle class, the company plans to first launch western wear and then venture into ethnic wear.

The company is also considering the option of setting up retail malls in the metros. It is also open to acquiring companies in Europe but is not considering brand acquisitions.

Madura Garments also proposes to enter this segment. It had commissioned a study into the feasibility of a foray into this segment which has been completed. Commenting on its proposed entry into the women's readymade branded garments, Mr. Rao said, ``We have completed out study and are acting on it. We are very positive and are currently formulating a strategy and will be venturing into it sometime in the near future.''

Color Plus Fashions has already announced its plans to launch the Color Plus range of casual women's wear early this year with a focus on western wear.

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