Drawback rate cut will hit exports

The leathergoods export sector has reacted sharply to the new duty drawback rates announced by the government, effective from June 1. The new rates entail a 50% cut in the drawback rate for leather gloves, a fast-moving item in EU markets, from 12.5% to 6%. Rates for some of the other top export items such as apparel and footwear have also been slashed. S S Kumar, eastern region chairman of the Council for Leather Exports (CLE), told Business Line that the industry had actually been demanding an upward revision from the pre-revised levels, and the sharp reduction in drawback rates had thrown the sector completely off-balance. Cancellation of substantial orders cannot be ruled out. The weakening euro has already cast a shadow on exports of leathergoods, particularly leather gloves, amounting to nearly Rs1,400 crore from this region. The drawback facility, which was effectively a refund of excise and customs duties, worked out to an aggregate of 25% in the case of leather gloves. Asked what could have been the provocation for such a steep cut in rates, Mr Kumar said the Union Government might be under the impression that a sizable amount was being refunded by way of a drawback to the leathergoods exporters, especially when raw hides worth Rs900 crore were being imported. The duty refund was a mere 1% (Rs90 crore) of the total leather exports basket of Rs9,000 crore, and the sharp cut in rates was, thus, unwarranted. A CLE team was expected to meet the Union Commerce Minister, Murasoli Maran, to discuss exporters' problems. Note: approximately Rs46.9 = US$1; one crore = 10 million