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Duty drawback to hit carpet industry hard

The Indian carpet industry stands to lose 2,00,000 jobs and around Rs 2 billion per annum in export earnings if the government does not roll back its recent decision on duty drawbacks, says the Federation of Indian Export Organisations, or FIEO.

FIEO northern region chairman O P Garg told newspersons that the recent decision by the government to impose value caps on synthetic rayon, woollen and silk carpets has come as a blow to the carpet industry.

''These value caps would have a cascading effect on this labour intensive industry and will render at least 200,000 people jobless if the move is not reversed. The country will also lose around Rs 2 billion per annum as export earnings from this industry,'' Garg said.

Though Garg welcomed the new duty drawback rates for nine new items, he said imposition of maximum value cap on 141 items would adversely affect exports, particularly in the small-scale sector.

''It has been felt by exporters at large that this value cap which is unjustified, will adversely affect export growth and employment in the country.''

The carpet industry has welcomed the revised rate of drawback at ten per cent for woollen and synthetic carpets and 12 per cent on silk carpets. However, it is aggrieved because of imposition of the value cap at Rs 175 per sq mts for synthetic and rayon, at Rs 180 per sq mts for woollen and Rs 625 per sq mts for silk carpets.

''In fact, the carpet industry as well as FIEO had taken up the matter for removal of value cap with the government. However, the suggestion did not find favour with the government. The industry had also suggested that there should be one drawback rate for the carpets to avoid any mis-declaration by the exporters. But the government has announced three different rates on the recommendation of the Carpet Export Promotion Council. The industry has again suggested that they would like to have a single rate ranging between ten per cent to 12 per cent to encourage higher value realisation, employment and export growth in the sector.''

The hand-knotted/handmade carpet industry alone is providing employment to 2.5 million semi-skilled and skilled craft persons and workers of the weaker section of society. Their units are located in interior parts of the country - small villages of Kashmir Valley, Rajasthan, Himachal Pradesh, Haryana, western Uttar Pradesh, Madhya Pradesh, Bihar, Andhra Pradesh and Tamil Nadu.

In the manufacturing process of hand-knotted carpets consumption of raw materials is higher and better quality woollen yarn is used (worsted or semi-worsted), rayon of higher count and also the silk yarn. Basic raw material is the yarn - woollen, synthetic or silk.

However, the cotton yarn, dyes and chemicals are common for all categories of carpets.

''Our past experience tells us that the value cap has affected production at all centers and created unemployment. This has also affected the export growth and FOB realisation. Exporters failed to fulfill their export commitments on confirmed orders due to the sudden changes in the Drawback Policy, Garg said.

The imposition of any value cap leads to mis-declaration, results in lower free on board, or FOB realisation besides affecting production and employment. With the value cap, exporters may also keep their money outside the country since many of them are maintaining their offices abroad.

Hence, the system of imposing value cap may be thoroughly examined by the government as it is likely to prove counter-productive for exports in the longer run.

FIEO also expressed concern at the RBI's recent instructions to the banks to charge 25 per cent interest on overdue export bills.

The industry feels that these instructions have been issued on the basis of wrong feedback given by banks to RBI stating that exporters are holding their realisation for dollar appreciation resulting in pressure on the Indian rupee.

''This feed back or the contention of the banks is wrong as the benefit of appreciation of dollar would go to banks and is not passed on to the exporters. These instructions will have an adverse impact on the export growth. Therefore, it needs to be renewed with retrospective effect, that is May 25.''

UNI

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