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Incentive given for exports of cotton counterproductive -Texprocil
Feb '09
Reacting to the government's decision to provide 5% incentive for exports of cotton from India and allowing government agencies such as Cotton Corporation of India (CCI) to provide discounts for bulk purchase of Cotton, Shri V.S. Velyutham, Chairman of The cotton Textiles Export Promotion Council (TEXPROCIL) cautioned that these measures, though well meaning, can become counterproductive and detrimental to overall growth of Indian textile industry, if simultaneous steps to protect the interests of value added segments such as yarn, fabrics and Home Textiles are not taken immediately.

The export competitiveness of Indian textile industry is already reeling under the pressures of high cost of cotton on account of an unrealistic rise of over 40% in the MSP of cotton. The industry was eagerly looking at some relief in the prices of cotton. Contrary to expectations, the recent moves have only further aggravated the ongoing crisis, he added.

The aim of the government to provide relief to the Cotton producer would not be achieved as the Cotton season is already over and most of the farmers have already sold their produce. The benefit of 5% incentive on exports of Cotton and that too given effect retrospectively from 1st April 2008 would not reach the intended beneficiaries, he warned.

“We understand that the Cotton exports need to be encouraged, but not at the cost of hampering the growth of value added textiles and clothing sector” he said.

Due to high prices of Cotton and slow down in major markets, Indian textile industry was holding on to the purchase of Cotton. The exports of cotton would worsen the stock to use ratio, which is already low (around 26%) when compared to global average of 54.79% during 2008-09.

Lower availability of Cotton in the domestic market would severely hamper the growth prospects of value added T&C sector, which not only is a significant foreign exchange earner but also is the largest employment providing sector after agriculture.

The decision of allowing government bodies to provide discounts on the bulk purchase of Cotton will benefit only the speculators and commodity hedge funds and not the manufacturers, who are not in a position to lift bulk quantities.

Strangely, the discount increases in tandem with the quantity purchased, thus benefitting the speculators and large buyers, most of whom are multinational companies who have access to cheaper funds at international interest rates (4%-5%) and thus are in a position to hoard the stocks against the small traders and manufacturers who are facing high cost of funds (to the tune of 11%-13%).

Considering these facts, the discounts should be provided on regular sales without discriminating the buyer of smaller quantities against bulk buyers and should be uniform, irrespective of quantities bought.

The Cotton Textiles Export Promotion Council

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