Clothes to get dearer - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Clothes to get dearer

Mar 18, 2011

Food, clothing and shelter are our basic human needs. We expect these bare minimum essentials to be within our reach even in times of high inflation. However, this does not seem to be the case in India at present. After unreasonably high levels of food inflation that was burning a hole in the pockets of Indians, now, even clothing is bound to become costlier. Although we are aware about the present Indian Government’s connect with "aam aadmi", we fail to understand what measures are being taken to protect the interests of this "aam aadmi".

In the recent Union Budget, our finance minister announced a levy of mandatory 10% excise duty on branded garments. This was done with an intention to bring the branded readymade garments under tax net. As expected, the retail companies which were already reeling under high input costs, have decided to pass this on to the ultimate consumers. While some retailers have already announced their plans to hike prices, others will soon follow. This will further increase the woes of the common man suffering from inflation.

Some of you might be wondering how this will affect the common man. You might say, "A common man is satisfied if he is sufficiently clothed irrespective of the brand". "Usually, it is the economically well off people who flaunt these brands". Well, these may not actually be true. To understand this, let us first define this frequently misused word "branded".

What does Branded mean?

As per the Government, branded garments may mean any garment which bear a brand name or are sold under a brand name. It will be interesting to know the origin of this word "brand". It is derived from the Old Norse brandr meaning "to burn." It refers to the practice of producers burning their mark (or brand) onto their products. In early times, farmers used to identify their livestock with a burn mark or a symbol. Thus, a branded good could mean anything that differentiates the products of one manufacturer from another. In our context, branded garments include all goods that have a specific logo, tag, monogram or any other identification mark associated with them. Branded does not necessarily refer to goods produced by Nike, Bata, Tommy Hilfiger and the likes and their brand names do not necessarily have to be registered. Moreover, this proposed hike is on all branded garments as well as other made-up textile products like curtains, bed linen, table linen, etc.

Earlier, all these apparels were subject to voluntary excise duty whereby the discretion of duty payment was with the manufacturer. He could avail of Cenvat credit only if he chose to pay excise duty and not otherwise. With effect from March1, 2011 these will attract a compulsory excise duty at a unified rate of 10%.

Impact on Retailers

Retailers across India have been voicing out their discontent with regards to the mandatory excise duty. More than 20,000 garment retailers went on a nationwide strike on March 7 to protest the proposed change. Earlier in the month, clothes manufacturers had also shut their factories across India.

The new levy is likely to adversely affect the Indian retailers. The administrative costs will rise for the manufacturers on account of increased paper work and complying with excise related formalities like registration. These costs will get transferred to the retailing companies in the form of higher input costs. The levy was introduced with immediate effect and the companies feel that they cannot change to the new taxing regime on such a short notice. It is not just an increase in tax rates; it is rather a change in taxing policy for the industry. It is not a welcome move at a time when India is already progressing towards a GST (Goods and Services Tax) regime. Raw material prices, mainly cotton have doubled from a year ago. The retailers were contemplating price hikes of 10-15% to protect margins. With the new tax burden, retailers will be induced to increase prices further and the additional raise could be close to 5-7%.

The rising prices of cotton could be taken care of by changing product mix or blends of the clothing fabrics. But excise duty hike will have to be passed on to the consumers. Is the Indian consumer ready to absorb such a hike? Well, that remains to be seen. We believe that the people will continue to spend on basic clothing, but may chose to defer their luxury and more discretionary purchases. The retailing companies thus will be affected negatively and the quantum of this impact will soon be evident.

Equitymaster requests your view! Post a comment on "Clothes to get dearer". Click here!

  

More Views on News

SPENCERS RETAIL 2020-21 Annual Report Analysis (Annual Result Update)

Nov 18, 2021 | Updated on Nov 18, 2021

Here's an analysis of the annual report of SPENCERS RETAIL for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of SPENCERS RETAIL. Also includes updates on the valuation of SPENCERS RETAIL.

SORIL INFRA RESOURCES 2020-21 Annual Report Analysis (Annual Result Update)

Nov 18, 2021 | Updated on Nov 18, 2021

Here's an analysis of the annual report of SORIL INFRA RESOURCES for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of SORIL INFRA RESOURCES. Also includes updates on the valuation of SORIL INFRA RESOURCES.

AVENUE SUPERMARTS Announces Quarterly Results (2QFY22); Net Profit Up 110.4% (Quarterly Result Update)

Oct 20, 2021 | Updated on Oct 20, 2021

For the quarter ended September 2021, AVENUE SUPERMARTS has posted a net profit of Rs 4 bn (up 110.4% YoY). Sales on the other hand came in at Rs 78 bn (up 46.8% YoY). Read on for a complete analysis of AVENUE SUPERMARTS 's quarterly results.

Avenue Supermarts Hits Record High. Marketcap Tops Rs 2.75 Lakh Crore (Views On News)

Sep 18, 2021

Despite near term challenges, Dmart shares have stayed resilient and scaled new highs. Read on to know why...

Devyani International Shares Make a Strong Debut. Lists at 56% Premium (Views On News)

Aug 16, 2021

Devyani is well placed to benefit from growing industry trends as it has a strong portfolio of highly recognised global brands.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

COMPARE COMPANY

MARKET STATS