Overseas clients not making payments, garment exporters in Noida stare at ₹250cr lossUpdated: Sep 05, 2020 22:57 IST
The garment and apparel exporters in Gautam Budh Nagar district are not a happy lot in the wake of the Covid-19 outbreak. Not only have their production and orders gone down by over 40%, but a number of their client companies overseas have also filed for bankruptcy, thereby putting at risk the payment of collective outstanding dues of over ₹250 crore.
Lalit Thukral, chairman (northern region) of the apparel Export Promotion Council (AEPC), said after the outbreak of Covid19, around 600 garment export units have been closed and the units in Noida suffered a collective loss of over ₹3,000 crore. “The pandemic was sudden and the industry was caught unawares. Orders had already been shipped to overseas buyers and, instead of accepting them, the buyers are bargaining with Indian exporters saying since their companies have been declared bankrupt, there is no legal obligation on them to make payments. They are now asking the Indian exporters to either take the shipments back or sell to them at half the price,” he said.
He further said loopholes in India’s export policy are being exploited by overseas buyers. “In countries such as Bangladesh and China, no item is allowed to be exported unless full advance or letter of credit (LC) is given by the buyers. But in India, the government has not yet made any policy to safeguard exporters. Although the government had set up the Export Credit and Guarantee Corporation of India (ECGC), to mitigate the risk of non-payment to exporters, a majority of exporters remains uncovered by ECGC insurance,” Thukral said.
He said at present, ECGC offers a package for banks at 0.07% of the credit amount, for packing credit taken by an exporter. “This can only protect the banks in case the exporter files for bankruptcy. The ECGC needs to design a similar policy for micro, small and medium enterprises (MSME) to protect exporters in case of non-payments,” he said.
Apparel exporter Manoj Sahu said ECGC is currently providing coverage to exporters only post-shipment. There there is no safeguard in case a buyer defaults after the exporter has purchased the material. “Coverage must be extended to pre-shipment as well. The apparel exporters are working on single digit margins. A single buyer defaulting would result in years of work disappearing overnight. The ECGC should also increase its insurance cap to 90%, instead of the prevailing 80%, of total outstanding. The time has come to overhaul our export policy,” he said.
The AEPC all-India chairman A Sakthivel, on September 2, had also written to secretaries of ministry of textiles and ministry of commerce, regarding non-realisation of export proceeds due to buyers declaring bankruptcy and cancellation of export orders. “This has led to a major concern, where our exporters have already claimed for duty drawback and rebate of state and central taxes and levies (RoSCTL), for the shipped goods. It has been ascertained that if the buyer does not pay for the shipped goods, exporters would have to refund/return the drawback and RoSCTL with interest,” the letter states.
The AEPC’s letter further said that it is a double blow for its member exporters, whose goods have been shipped after they have paid all the taxes.
A senior official of the ministry of commerce said they have received the letter. “We are working on it. We hope to bring out some mechanism very soon, which can save the exporters from this adverse situation,” he said, on condition of anonymity.