Dec 11, 2018

Dhaka Vs Ranchi - a post GST scenario analysis of apparel imports

Under the existing system of trade and indirect taxation prevailing in textile and garment sector, does it makes more sense for a Bangalore stockist of apparels to import from Dhaka in Bangladesh over buying from Ranchi? Here's the self explanatory calculation.

Assumptions: Bangladesh usually sources fabric from China while an Indian supplier sources fabric from an Indian supplier based in Gujarat/other states. I shall assume that the price at the factory gate of fabric manufacturer for both Chinese and Indian fabric is same - usually Chinese fabric is cheaper. The transportation cost from China to Bangladesh is same as that from Gujarat/other states to Ranchi - usually Chinese transport cost would be smaller. I shall also assume, for sake of simplicity that labor cost in Bangladesh is same as that in Ranchi, while a ballpark analysis tells that Bangla labor is cheaper by 40% over Indian labor.

(Excel online may take some time to load the table below - I shall be thankful and glad to correct any errors if pointed out)

From the above, it appears that Dhaka has a clear advantage over Ranchi despite adverse assumptions towards Dhaka.

Before GST, the IGST component paid at border was not refunded to the importer. That barrier was significant.

Did all this add up in the end? Did the imports really rise for apparels after introduction of GST? The below graph for pre and post GST quarters of import under ITC-HS 61 and 62 (apparels) from Bangladesh into India is self explanatory. The red tick is the point where GST was introduced.

image of apparel imports from Bangladesh into india
Apparel imports (ITC-HS chapters 61 + 62) from Bangladesh into India - Before and After GST

image of post GST rise in  imports after GST

Looks like Dhaka is indeed making sense over Ranchi and all other apparel cities of India.

Edit 1: Thanks Moin for pointing out the error in calculation. Rectified now.