Budget Impact: Branded apparels to cost marginally less

Branded garments are expected to cost less despite a hike in excise duty from 10 to 12 per cent. The Finance Minister had announced a hike in the abatement from 55 per cent to 70 per cent under the budgetary proposals for 2012-13.

This means is that the levy would not be imposed on 70 per cent of the cost of the product as against the present exemption of 55 per cent, thereby reducing the effective excise duty from 4.5 per cent to 3.6 per cen. This sure is good news for the customer. While a section of the industry has welcomed the move, some feel it wouldn’t make much of a difference since the increase in duty rate would adversely impact raw material costs.

Last year the FM had had imposed a 10 per cent excise duty on branded apparels, which forced retailers to increase product price. Due to a slow economy, consumers tightened their purse strings after the hike, which resulted in piling up of inventories and dry sales even during the festive/winter season. Apparel retailers and industry bodies had expressed displeasure and concerns about the government’s move and were expecting a roll-back of excise duty in this year.

Contrary to expectations, Pranab Mukherjee proposed an enhancement of excise duty on branded apparels to 12 per cent up from 10 per cent but the move is not being opposed by the industry. Reason: along with an increase in duty, he proposed an increase in abatement.

But according to Apparel Export Promotion Council (AEPC) Chairman A Sakthivel,“The increase in the duty rate from 10 per cent to 12 per cent will adversely impact raw-material costs.” Garment manufacturers feel that the impact of excise duty reduction would be marginal and would only benefit high-end companies. Adds Sandeep Jain, Executive Director of Oswal Woolen Mills, “Though the excise duty on ready-made garments has been reduced rendering garments more affordable, the increase in excise duty on acrylic fibre by 2 percent is not a good thing.”

Apparel retailers however, are seeing it as a positive step. For instance, with the proposed enhanced abatement, on a Rs 1,000 shirt, the manufacturer had to pay Rs 45 towards excise duty, this would now come down to Rs 36. As Govind Shrikhande, MD, Shoppers Stop points out, “The announcement will see prices of private label garments coming down by seven to eight per cent.”

Though the decrease in price is negligible, the industry feels any small reduction is a welcome move, as it will help retailers improve profitability to some extent. As Gautam Singhania, CMD, Raymond puts it, “The reduction of duty on branded garments and abatements to the textile sector, although marginal, are steps in the right direction. Overall the budget aims at resilience in the context of the current political and economic scenario.” Reiterating similar sentiment, Rahul Mehta, President of the Clothing Manufacturers’ Association of India (CMAI) appreciated the move saying, “This is an acceptance of CMAI’s persistent representation to the government that the marketing costs in our industry are much higher than the abatement in place and the garment industry needs to be placed in the ‘Necessity’ rate of duty since garments are used by the poorest section of the society.”

Retailers are also hoping that effective rate of excise duty post abatement will be coupled with a positive impact of reduction in income tax as it would increase disposable incomespropelling consumers to get back to shopping.