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Industry warns cotton yarn exports may fall further, demands incentives

Three years of fall, with more expected, goes petition to Prabhu's ministry for policy intervention

Subhayan Chakraborty  |  New Delhi 

cotton, cotton yield

With cotton yarn export dropping for three years in a row, industry bodies have demanded export incentives and trade policy interventions.

They've given a detailed analysis to the commerce and industry ministry, showing the $3.5 billion export segment is shrinking. The segment makes up more than a tenth of India's total textile export and is one of the few segments there in which the country had historically enjoyed an advantage until recently.

In 2016-17, the export of cotton yarn fell 7.7 per cent. Apart from trade reasons, the spectre of a five per cent Goods and Services Tax on both yarn and fabric have hit the hitherto untaxed industry hard. A recent report from ratings agency ICRA says the rupee's rise over the past year, with high raw material prices in the past six to nine months, had disadvantaged the industry.

Also, with domestic demand not growing, investment into spinning mills have stopped, pushing up manufacturing prices, exporters claim.

As a result, industry bodies have asked that cotton yarn be allowed benefits under the Merchandise Exports from India Scheme and Interest Equalisation Scheme, something man-made yarn already gets. They've also raised the issue of drawback rates recently being revised.

On the trade front, experts and exporters have called for policy interventions with major buyers of Indian cotton yarn, such as China. In 2016-17, of the $3.3 billion of the commodity's export, a little over $1 bn was headed to China.

"India is disproportionately dependent on China for exports. But, export orders have continued to decrease over the past couple of years due to Vietnam and Bangladesh advancing on the Chinese market with more than a four per cent tariff advantage due to trade agreements and cheaper labour costs," says S K Jain, chairman of the Confederation of Indian Textile Industry.

These nations have increasingly encroached on India's turf in the categories of apparel and home furnishings over the past couple of years in America and the European Union.

"Vietnam recently leveraged its growing position as a hub of textile manufacturing, as well as trade concessions under the China-Asean free trade agreement, to capture the Chinese market," says a Delhi-based trade expert.

Cotton yarn is also exported to Bangladesh, Pakistan, Egypt and Korea, all centres of textile manufacturing. Interestingly, export to Bangladesh and Pakistan have risen. Of this, shipments to India's western neighbor saw a significant rise over the past two years despite political and military standoffs. The $213 million of yarn to Pakistan in 2016-17 was a 62 per cent jump, over the the 45 per cent export rise the previous year. Only raw cotton was a larger shipment group to that country. Both nations are traditional cotton producing, have unreliable production cycles and have seen increasing attacks by pesticide-resistant strains of insects over four years.

First Published: Fri, October 13 2017. 18:08 IST
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