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Tax and tariff policies have created distortions in the apparel and footwear sectors in the country hurting productivity and global competitiveness and making Indian businesses lose out to Bangladesh, Indonesia and Vietnam, the Economic Survey 2016-17 has said.
“The space vacated by China is fast being taken over by Bangladesh and Vietnam in case of apparels and Vietnam and Indonesia in case of leather and footwear, while Indian companies struggle in face of a set of common challenges related to logistics, labour regulations, tax & tariff policy and disadvantages emanating from the international trading environment compared to competitor countries,” the Survey, presented in Parliament on Tuesday, pointed out.
Stressing on the importance of the two sectors in terms of generating jobs, the Survey proposed that the existing incentives needed to be supplemented by the government through further actions such as entering into a free trade agreement with the EU and the UK. “An FTA with EU and UK in the case of apparel will offset an existing disadvantage by India’s competitors- Bangladesh, Vietnam and Ethiopia. In the case of leather and footwear, the FTA might give India an advantage relative to competitors. In both cases, the incremental impact would be positive,” it said.
Elaborating on the existing tax anomalies, the Survey pointed out that India imposed a 10 per cent tariff on man-made fibers vis- a-vis 6 per cent on cotton fibres. On the other hand, domestic taxes also favor cotton-based production rather than production based on man-made fibers, and leather footwear rather than non leather footwear, it added.
The introduction of the GST offers an excellent opportunity to rationalise domestic indirect taxes so that they do not discriminate in the case of apparels against the production of clothing that uses man-made fibers, and in the case of footwear against the production of non-leather based footwear, the Survey said.
The Survey also called for rationalisation of labour policies for the two sectors.
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