India Revises Apparel Duties

Prices on branded garments will come down in India in the fiscal year starting April 1.

NEW DELHI — After a series of somersaults, including an increase in excise duty and changing the way the tax abatement is made, prices on branded garments will come down in India in the fiscal year starting April 1.

Although the excise duty on branded garments has been increased to 12 percent from 10 percent in the new budget presented last week, the duty will be charged on 30 percent of the cost of the products instead of 45 percent, which will bring down final prices.

“As a result, the incidence of duty as a percentage of the retail sale price would come down from 4.5 percent to 3.6 percent,” Pranab Mukherjee, the country’s finance minister, said as he presented the government’s budget for 2012-13 in parliament. Last year, a 10 percent excise duty introduced on branded apparel led to widespread protests from the fashion industry with demands for the government to rescind the tax.

The tax was levied on both imported and Indian branded garments. The government’s decision to change the way the duty is calculated will bring down prices but has frustrated the hopes of various organizations, such as the Associated Chambers of Commerce and Industry, which were hoping the duty on branded garments would be cut to 1 percent.

Meanwhile, service tax has gone up from 10 to 12 percent, increasing the pressure on consumers.

The finance minister said that the economy’s growth rate for the next fiscal year would be about 7.6 percent and could be expected to be 8.4 percent in 2013-14. He observed that India had suffered from rising inflation and the global economic situation to drop to a 6.9 percent growth rate in the current fiscal year, but would be back on track in 2012-13.

Industry analysts feel that this may be overly optimistic, given the rate of inflation as well as the government’s apparent lack of decision making prowess.

Many retailers had been hoping that foreign direct investment in multibrand retail would be sanctioned and announced with this budget. However, this matter remains postponed until there is a greater political consensus.