DEPB incentive withdrawal may further dent cotton yarn exports, fears CITI

With cotton yarn exporters unable to pass on rising prices to recession hit Western markets, the Confederation of Indian Textile Industry (CITI) has called for steps to deal with issues of unviable cotton prices as well as uncompetitive power cost and labour cost on all segments of the textile chain.

Reacting to the decisions announced by government for withdrawal of 7.67 per cent DEPB benefits and for introducing a cess on export of cotton yarn, the industry body has observed that these are "wrong medicines for a genuine ailment".

According to Shishir Jaipuria, chairman CITI, "Exporters of home textiles and garments, who are in the final sub sect of the textile chain, are finding it difficult to either absorb the increased costs or to pass them on to the global markets. That a large portion of these sub sects are highly fragmented only adds further to the cost escalation, since they lack economies of scale. While those selling home textiles and garments to the domestic markets may be able to pass on the additional costs to the consumers, those exporting to the recession hit Western markets are not able to do so."

Jaipuria stated that the step stems from the wrong notion that exports are the cause for the price escalation in cotton yarn. "Less than 20 percent of cotton yarn produced in the country gets exported and the total exports of cotton yarn during 2009-10 are significantly lower than the years in recent past – excluding the recession year of 2008-09 – as government's own export figures would show," he pointed.

Apparently, the increase in cotton yarn prices have been triggered by a runaway increase in cotton prices and significant increase in power and labour costs for the spinning mills. The price escalation on the primary inputs is being passed on by the spinning industry to the fabric industry and the latter to the home textiles and garment industry.

Jaipuria also stated out that the two percent additional duty scrips on garment exports to the US and EU announced recently by the Minister of Commerce and Industry was a step in the right direction for addressing this issue.

More similar assistance on garment exports to absorb the additional costs could have solved this problem without disturbing the other sectors.