Drawback rate cut will hit exports

1 July 2001

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

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