Scrapping cotton import duty receives mixed reactions

15 Jul '08

4 min read

Following the verdict of Union Government to scrap 14 percent duty on import of cotton, prices of the raw material in the domestic market are showing all the likelihood of a climb down. Evidently, the real motive behind this step taken was to ensure that the garment and textile industry which was until now reeling under the pressure of high prices, is benefited.

In an exclusive interview with Fibre2fashion, Mr Rahul Mehta, President of Clothing Manufacturers Association of India and Vice President of Asian Apparel Federation opined, “I think this is a very positive step taken in the right direction. Exports from India are primarily cotton-centric, and in the last few months, apart from inflation in general the sky-rocketing prices of cotton was killing the industry. This measure announced by the government will go a long way in calming down the prevailing havoc, and will certainly make our garments more competitive in the global market.”

Dr DK Selvaraju, Secretary General of Southern India Mills Association (SIMA), shared a slightly different view saying, “Definitely the steps taken by the Government are welcome. Though the industry has been pleading to take such steps right from the beginning of cotton season, ie., October, 2007 onwards, the Government responded a little late but, cotton prices may still come under control. However, these initiatives have indeed created a level playing field to a certain extent in the globalized environment.”

However, Dr Selvaraju still believed that the Government needs to take a number of additional measures to ease out the situation and enable the textile industry to come out of the cotton crisis. Some of these measures include, banning of cotton export immediately until December 31, 2008 by which time the new crop would arrive and the circumstances can be reviewed.

Again, channelizing all future cotton exports through Cotton Council International (CCI) and other State Federations and a levy of 5 percent duty on cotton exports will also go a long way in solving the existing crisis. Moreover, the Government must also ensure to have 40 percent stock to use ratio, since all the competing countries maintain the same at around 42 percent. A reduction in margin money for working capital to 10 percent against the prevailing 25 percent and a 7 percent charge on loans like for agriculture will also be of immense help.

Mr PG Makhija, Managing Director of Ambuja Group was skeptical about Government's decision and strongly believed that scrapping of import duty on cotton shall not help textile industry in real terms. He asserted that, “Export Oriented Units (EOUs) could import cotton without duty. Similarly other exporters can import cotton against advance licence without any duty. Even for EOUs and other exporters, the imported cotton was not viable without duty due to high prices. Therefore there shall be no real relief to the textile industry by scrapping the import duty. The Government decision shall only create a psychological impact on the minds of Indian cotton traders or international traders who are hoarding the raw material. But even this impact is short lived.”

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