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Removal of import duty on cotton is a 'late' relief; now stop free flow of raw materials to China, Bangladesh, says stakeholders


The government’s decision to remove import duty on cotton will reduce the prices of the commodity and help exporters, but it should have come earlier, say traders.

The withdrawal of import duty on cotton is a big relief, says Sumit Jain, the MD of Delhi-based Kanin Originals, a manufacturer and exporter of cotton-based readymade garments. But he asserts that the decision was belated. “For the last 6-7 months, there has been a consistent spike in cotton prices every fortnight. Several orders we had got cancelled due to the high prices. We couldn’t execute many business commitments as the steep price hike derailed our original manufacturing plans and timelines. This step partly addresses our concerns. Currently, we can’t plan anything as there is so much price volatility,” says Jain, who serves clients in China, Europe, West Asia and Africa.

Cotton prices have been rising because of a combination of factors involving supply shortage and a rise in demand. Excessive rain in cotton-growing areas has affected output in India, the world’s leading producer of the commodity. The US had in 2020 imposed sanctions on cotton suppliers from Xinjiang in China, the second largest producer. About 45% of the world’s production is from India and China, according to the US Department of Agriculture. While post-Covid revenge buying caused a rise in demand for cotton, the logistics and supply chain disruptions caused by the pandemic have jammed the global trade routes. These are among the factors that have inflated cotton prices while curbing supply.

Industry observers told ET Online that in October 2021, the popular Shankar 6 variety of cotton cost Rs 59,000 a candy. This soared to Rs 90,000 in April 2022, hurting manufacturers and exporters. On April 13, the government removed import duty on cotton till September 30, 2022. The decision effectively meant that the customs duty on raw cotton has now been reduced from 10% to nil, in an effort to stabilise prices.

The industry has been demanding the removal of the import duty at least since October 2021. The country’s textile exporting community hailed the decision but also added that it was “late” by at least a few months.

“My only observation is that if the decision had come sooner — by 2-3 months, it would have greatly eased pressure on our export shipments,” says Pentappa Irappa Goddam, Director of Solapur District Powerloom Association. Manufacturing and exports of towels and bedsheets from the MSME-dominated district in Maharashtra were severely affected in the last 8-10 months due to the hike in cotton price, he adds.

Traders and exporters say to effectively help the domestic textile industry, the government should take more steps right away.

Jain of Kanin Originals suggests the government put some curbs on yarn export as that would bring some stability to the garment industry.

The government has to also take a firm view on measures needed to control the export of cotton in order to help add value to cotton products, says Prakash P, Manager at Karur-based textile firm Aarthia Impex.

India exported $43 billion worth of textiles in 2021-22, against $33 billion in the previous year. The HomeTextile Exporters Welfare Association (HEWA) insists the figure could have been much higher if the prices had not gone up so steeply.

For now, the domestic textile industry is willing to take solace from their view that the duty exemption would bring stability to prices and spur activity in the entire textile chain — yarn, fabric, garments and made-ups. The exemption will particularly help MSMEs in the sector as they are already facing stiff competition from other countries.

“With the cost of cotton spiralled up in 6 months, many small players would have faced mill closure. Removal of the import duty will ease pressure on manufacturers who had to deal with shortages,” says Ronak Chiripal, CEO of Nandan Terry Limited.

The import duty had placed textile manufacturers at a disadvantage against Pakistan, Bangladesh and Vietnam — economies that are now giving Indian players tough pricing competition — adds the chief of the Ahmedabad-based textile firm.

HEWA has appealed to the government to introduce some checks and balances to stop the uncontrolled exports of raw materials to competing countries such as China and Bangladesh. Such uncontrolled outflow of the country’s raw material considerably disturbs the supply-demand cycle of our domestic manufacturers, it added.

Removing the import duty is also expected to bring down the scarcity created by hoarders. Director of HEWA Anant Srivastava says this is likely to be the biggest impact of the decision as it would have a huge impact on cotton hoarders who were profiteering from the scarcity. “The government’s decision has started yielding results. It will bring a full stop to the volatile situation that has been prevalent in the last 6-8 months. Further, it will lead to hassle-free availability of cotton in the off season,” Srivastava adds.

If the government wants to promote value-added exports, the association says, it should also revoke export incentives on raw materials, including RoDTEP and duty drawback benefits. Such a rejig in policy shift is needed as it is an established fact that value addition and finished goods can generate 10x more employment opportunities and 2-5x more revenue in exports, the industry body adds.

(The one-stop destination for MSME, ET RISE provides news, views and analysis around GST, Exports, Funding, Policy and small business management.)

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