CITI expresses pain on withdrawal of yarn export sops

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SME Times News Bureau | 10 Apr, 2010
Confederation of Indian Textile Industry (CITI) has expressed its anguish at the withdrawal of export incentives on cotton yarn.

Reacting to the decisions announced by government for withdrawal of 7.67 percent DEPB benefits and for introducing a cess on export of cotton yarn, Shishir Jaipuria, Chairman CITI observed that these are the wrong medicines for a genuine ailment.

While it is true that cotton yarn prices have increased significantly in recent months, it is also true that this increase has 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 stated that 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. Solutions need to be found to this problem, rather than taking measures that would render the already beleaguered upstream sub sectors also unviable.

He pointed out in this context that spinning mills in the country had suffered huge losses during the last two years and a large number of them had to resort to corporate debt restructuring last year to remain afloat.

CITI Chairman pointed out that the 2 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 assistance on garment exports to absorb the additional costs could have solved this problem without disturbing the other sectors.

Dealing with the specific decisions announced by government this week, Shishir Jaipuria stated that these stem from the wrong notion that exports are the cause for the price escalation in cotton yarn. He pointed out that 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.

Chairman, CITI also highlighted the need to address the issues of unviable cotton prices as well as the uncompetitive power cost and labour cost on all the segments of the textile chain.

He added that in the case of cotton, availability of land and productivity are limiting factors in increasing supplies, whereas in the case of yarn, supply can match demand – both domestic and overseas – by improving utilization of the existing capacity in full and also by establishing additional capacities, where necessary.

Jaipuria explained that cotton prices have increased in the global markets because of lower production and higher consumption and this has pushed up cotton yarn prices all over the world. India is able to export cotton yarn at the current prices simply because global prices are even higher.

Disinventivising or taxing exports may lead to some temporary decline in yarn exports, but this is unlikely to make any significant impact on domestic yarn prices, so long as the global markets are able to absorb the additional cost. “The only effective remedy to the current problem is to improve the cost competitiveness of our home textiles and garments in global markets through improving production efficiencies and extending adequate government incentives” said Jaipuria.

Shishir Jaipuria requested government to withdraw the negative decisions taken on cotton yarn exports and to replace them with positive decisions for improving the exports of downstream products.