Financial Daily from THE HINDU group of publications
Wednesday, Jan 11, 2006
Exports & Imports
Industry & Economy - Textiles
Kandla turns national capital for used clothes from West
Kandla/Ahmedabad , Jan. 10
URVASHIBEN pulls out a brand new sweatshirt from a heap of clothes at Ahmedabad's Kalupur area. The size fits Jignesh, her 18-year-old son. After some amount of haggling, the deal is settled at Rs 75.
Urvashiben may not be aware of it, but she just picked up a `worn (used) garment' that was illegally imported into the country. But if the Kandla Used Clothing Association is to be believed, she could have picked up the same garment through the legal channel.
Worn clothes had been moved from open general licence (OGL) to the restricted imports list in October 2004 following complaints of dumping by companies based in Canada and the US that were hurting domestic manufacturers.
As of now, used clothes - garments discarded by users or stores in the West after every change of season - cannot be sold in India.
The Kandla Special Economic Zone (SEZ) has 11 units that were set up for sorting and grading used clothing meant for re-export to African countries.
"As a ballpark figure, about 40 per cent of the clothes can be re-exported, and another 30-35 per cent are cut and made into fibre or filling material by units in Ludhiana and Panipat. The rest are clothes that are fit to be sold in the Domestic Tariff Area (DTA or Indian markets)," said Mr Prakash Jain of Maruti Exports.
The Government had relaxed imports of used clothing by putting it in the OGL list after the Kutch earthquake of 2001. But it was put back in the restricted list in 2004.
The Kandla Used Clothing Association has approached the Government for a relaxation saying that the SEZ was set up on the basic premise that the value addition in terms of sorting and grading would be done in India and exports of used garments would earn foreign exchange for the country.
"We respect the Government's view that the country should not become a dumping ground for used clothes from the West. But an exception should be made in our case as the quantities involved are too small to impact Indian garment manufacturers," Mr Jain said.
The Commerce Ministry had assured the units located in the Kandla SEZ that they will be allowed to sell their leftover clothes in the DTA. Anticipating a notification, the units have been piling up stocks for the last several months.
Margins hit: Stating that the margins of the exporters in Kandla SEZ were taking a severe hit, Mr Jain said that one of the units has closed shop while another got burnt down recently and was not in a position to start operations again.
"We employ nearly 5,000 workers, most of whom are unskilled women from Andhra Pradesh. If our leftover clothes are allowed to be sold in India, poor people will benefit as they will get good clothes at very low prices," said Mr Haji Juned of Tulip Exim, another unit located in Kandla SEZ.
Mr Jain said that all the units in Kandla SEZ follow international norms and import used garments only after proper fumigation and certification.
The different units import nearly 6,000 tonnes of used clothing every month, out of which about 2,500 tonnes are re-exported and 2,100 tonnes get converted into industrial raw material. The rest constitute the leftovers that these units have been piling up for sales in the DTA. The total value of the trade is over Rs 300 crore.
Mostly store rejects: Interestingly, a greater proportion of the garments are store rejects and not clothes that have already been worn by people.
"About 75 per cent of the clothes that come in are the ones that the stores reject every time they bring in their new collection. Used clothes picked up by charity organisations are less than 25 per cent of the lots that we receive," Mr Jain said.
But that does not explain how the sweatshirt picked up by Urvashiben for Jignesh landed in Ahmedabad. Mr Jain said that a section of importers have been using a loophole in the system that allows one-time import by paying a penalty. In a smart modus operandi, these agents import clothes that are already sorted and graded by units in Canada. Using different names, the consignments are released at Delhi, Mumbai, or Kolkata by paying the fine.
"The Government is losing revenue by not allowing us to sell our used clothes in the DTA and unscrupulous agents make a killing by importing clothes that have already been sorted," said Mr Jain.
Clearly, Urvashiben does not care two hoots as long as Jignesh can flaunt his sweatshirt and the "foreign" stuff is available at Kalupur.
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