As per a study by the Confederation of Indian Textile Industry (CITI), India is way behind in the export of cotton to key markets because of a duty disadvantage in regard with Vietnam, Bangladesh, and Pakistan.
The Indian fabric export has dropped down to 7%, whereas cotton export to China and the European Union (EU) has gone down by 25%.
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The data provided by the apex chamber of Indian textiles is even more distressing. According to the data the Indian cotton yarn exports have received a massive blow and have gone down to $3.4 billion in 2017-18 as compared to $4.5 billion in 2013-14. This reason for this fall is that China has substituted India with Indonesia and Vietnam in the import of cotton yarn. The main reason for this change is because Indonesia and Vietnam have duty-free access, while Indian yarn has an import duty of 3.5%. Likewise, exports of cotton yarn by India have a 4% duty in the European Union but Indonesia and Vietnam carry a 3.2% tariff and also the least developed countries (LDCs) can have duty-free access.
CITI has recommended the addition of cotton yarn and higher inducement for fabric — as compared to the prevalent 2% —in Merchandise Exports, to make them competitive.
Speaking about the issue Sanjay K Jain, chairman, CITI, said “Indian spinning mills have performed fine in exports in 2013-14 when the cotton yarn was had incentives like 2% interest subvention, 2% incremental export incentive and 3% focus market incentive. The sector is capable of penetrating markets other than China.” The removal of these extra incentives has left the mills in a distressing situation. “The industry is bound to sell cotton yarn at lesser prices because of an excess of them in store. When it comes to fabric, Indian exports levy 8-10% duties, that is 6.4% maximum for the other exporting countries”, said Jain.
According to the CITI analysis report, India’s raw cotton is reaching several markets at zero duty rather than being converted into yarn or fabric which shall result in the loss of jobs and foreign exchange. In 2017-18, India exported $1.9 billion of raw cotton.
Jain further added, “The entire value chain is being impacted with the fall in fabric and cotton yarn and fabric exports. It impacts everyone from the spinners to the farmers, knitters, and weavers. There is substantial exportable excess but we are unable to overcome the tax disadvantage in spite of being competitive in spinning and weaving both.”