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Duty disadvantages leads to a fall in Indian exports

"As per Sanjay Kumar Jain, Chairman, CITI, India’s cotton yarn and fabric exports are struggling due to the duty disadvantage faced by exporters in major markets. There has been continuous decline in cotton yarn and fabric exports from 2013-14 to 2017-18. India’s export of cotton yarn declined 25 per cent from $4,570 million in 2013-14 to $3,443 million in 2017-18. Fabric exports, during the same period, declined 7 per cent from $4,941 million to $4,598 million. China, the largest importer of cotton yarn has shifted focus from India to Vietnam, Indonesia as these countries offer duty free access, while Indian yarn carries a 3.5 import duty."

 

Duty disadvantages leads to a fall in Indian exports 002As per Sanjay Kumar Jain, Chairman, CITI, India’s cotton yarn and fabric exports are struggling due to the duty disadvantage faced by exporters in major markets. There has been continuous decline in cotton yarn and fabric exports from 2013-14 to 2017-18. India’s export of cotton yarn declined 25 per cent from $4,570 million in 2013-14 to $3,443 million in 2017-18. Fabric exports, during the same period, declined 7 per cent from $4,941 million to $4,598 million.

China, the largest importer of cotton yarn has shifted focus from India to Vietnam, Indonesia as these countries offer duty free access, while Indian yarn carries a 3.5 import duty. There has been a decline in India’s cotton yarn exports to China by 48 per cent from 2013-17 while exports from Vietnam and Indonesia have increased at a remarkable rate of 129 per cent and 55 per cent respectively in the same period.

Raw cotton exports a loss, import duties add to woes

India’s raw cotton is exported to various markets at zero per cent duty. The country exported $1894 million worth of raw cotton in 2017-18. Export of raw cotton bales instead of value addition by converting to yarn and fabric is leading to loss of valuable foreign exchange, employment and better remuneration to farmers. Similarly, fabric exports from India are at serious disadvantage visà-vis exports from competing countries due to duty differentials in leading exports markets. Markets like EU, China, Turkey and Vietnam impose an import duty in the range of 8-12 per cent on Indian fabric while duty free access is given to countries such as Pakistan, Cambodia, Bangladesh and Cambodia.

The fall in Indian cotton yarn and fabric exports is impacting the entire value chain as there is considerable exportable surplus in the country. As per the Financial StabilityDuty disadvantages leads to a fall in Indian exports 001 Report by RBI, the stressed advanced ratio of textiles sector stood at 18.7 in September 2018.

Covering cotton yarn under MEIS to boost exports

Further, Jain highlighted growth in clothing stock has not led to consumption leading to a pressure on the yarn and fabric capacities. Export of garments has declined from $17.4 billion in 2016-17 to $16.7 billion in 2017-18. Jain urged the government to cover cotton yarn under MEIS which will boost India’s exports besides helping it penetrate new markets especially in Africa. Also, farmers will get better price for raw cotton. Cotton yarn is the only segment not covered under MEIS. Hence, despite abundant raw materials and second largest cotton spinning infrastructure in the world, cotton yarn exports are struggling in the absence of government support.

Increase in MEIS for fabric needed

Jain urged the government to enhance MEIS for fabric from 2 to 4 per cent on par with made ups. He said weaving sector is labor intensive like the made ups and garmenting sectors and mostly carried out in the unorganised sector especially in the rural and semi-urban areas. The sector employs women substantially. Hence, if MEIS rate for fabrics is increased from 2 to 4 per cent, exports of fabrics will increase by $1 billion per annum. He urged the government to consider the plea of textile industry and resolve the issues on an urgent basis.

 

 
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