The Rs 15,000-crore denim industry says 30-40 per cent of its operating capacity has been shut since the goods and services tax (GST) was implemented, due to weak domestic demand and reduced potential for export.
The government has levied 12 per cent GST on branded garments beyond the maximum retail price of Rs 1,000 and five per cent below this threshold. Denim demand from local consumers and importers has fallen, with manufacturers either having to shut down or operate at reduced capacity.
“Since the GST implementation from July 1, the denim industry has temporarily closed down 30-40 per cent of its operating capacity across the board. If this continues, there can be more production cuts,” said Sharad Jaipuria, chairman, Denim Manufacturers Association.
The denim fabric manufacturing industry had, over the past decade, been growing at a 15 per cent compounded annual rate. Installed capacity is 1.5 billion metres a year, second largest in the world, after China. With annual sale of Rs 15,000 crore, this industry employs around 400,000 workers directly, besides the indirect spinoff.
Denim manufacturing hubs have gone under a massive slowdown due to the liquidity crunch after demonetisation and slow acceptance of GST by small players to become part of the formal economy. As 85 per cent of the fabric is sold in the the domestic market, denim fabric mills are badly hit,” said Akhilesh Rathi, Director, Bhaskar Denim.
The number of denim fabric mills was 30 in 2012; it is now 46. Denim fabric production capacity was 800 million metres in 2012 and is now 1,500 mn metres, with another 150 mn metres of new capacity in the pipeline for expansion.
According to Amit Dalmia of R&B Denims, the upstream activities of garment sewing and washing in small scale industry hubs will take a while before they change for working smoothly with the formal banking system. “We are not foreseeing any short-term recovery of the market,” he said.
India exports denim fabric of 200 mn metres annually. The value of export was $316 mn in 2016-17, down 11 per cent from $335 mn in 2014-15.
Atul Singh, Director at the Ashima Group, says the government needs to announce immediately some enhancement in duty drawback rates and extend some more benefits under the Returns of State Levies scheme, the Merchandise Export from India Scheme, the focus product and focus market schemes.