The Economic Survey report 2017-18 has established that the implementation of Rs 6,000 crore package, announced for the apparel sector on June 2016, has provided an impetus to the exports of ready made garments (RMG) of man-made fibres.

The survey, which was tabled today (29 January) in both houses of the Parliament by Finance Minister Arun Jaitley ahead of the Union budget, provides details on the impact of the measure.

The apparel sector has immense potential to drive economic growth, increased employment, and empower women in India. The potential of the sector has increase recently with China’s share of global apparel exports coming down in recent years. However, India has not, or not yet, capitalised on this opening resulting in countries like Vietnam and Bangladesh quickly filling the vacuum left by China.

In order to get back in the game, the Cabinet in June 2016 announced a Rs 6,000 crore package for the apparel sector, says the survey. The largest component of this package were rebates on state levies (ROSL) to offset indirect taxes levied by the states (then Value Added Tax or VAT) that were embedded in exports. This ROSL was over and above the duty drawbacks and other incentives (like the Merchandise Exports from India Scheme (MEIS) that were given to offset indirect taxes embedded in exports. Prior to the introduction of the package, duty-drawbacks were between 7.5 per cent and 9.8 per cent for apparels. Post its introduction, the ROSL increased export incentives by between 2.8 per cent and 3.9 per cent.

A key question is: did the package succeed? To answer this, the survey uses a well-recognised difference-in-difference (DD) approach, which allows it to isolate, albeit imperfectly, the impact of the package. Essentially, the approach asks whether the gap between clothing and comparator group export growth increased after the package was introduced.

Three main findings emerge:

The package increased exports of readymade garments (RMG) made of man-made fibres (MMFs)

The package did not have a statistically positive impact on RMG made of other fibre (silk, cotton, etc); and

The impact on MMF-RMGs increased gradually over time; by September 2017, the cumulative impact was about 16 per cent over other comparator groups.

The figure below shows the growth in clothing exports compared to other labor-intensive and manufacturing goods, which did not receive ROSL. The positive impact on RMGs made of MMF after the introduction of the package shows a sharp increase.