If one needs to point out the patently unreasonable attitude
towards one's prime responsibilities, one does not have to go very far. This is
more so, in case of textile and garment sector. The industry has been at pains
to explain to the Government for a very, very long time that cotton and yarn
exports need to be managed in a professional manner by not only making it
obligatory on the part of cotton exporters to seek registration with a
designated authority but also by keeping under constant review the cotton and
yarn exports that have gone unbridled to the extreme disadvantage of all
stakeholders right from the producer through garment exporters.
The Stitch Times has always, in its own humble way, brought out the painful plight of the garment exporters on this very issue, in its Cover Story in the latest issue, under the caption "The Cotton Fiasco." Our analysis and sentiments were adequately reflected in the concluding paragraph of my article, which said, "Long Live the Government, which has blissfully ignored the crying need for ensuring adequate availability of cotton to textile mills at reasonable prices; allowing unbridled, unregulated export of cotton at cheaper rates to our competing economies by international buyers by starving Indian textile mills of their basic raw material; turning a deaf ear and a Nelson eye to the cries of the industry, which has partially closed with imminent more closures due to shortage and high prices of cotton; and then grudgingly agreeing to scrap incentives for cotton exports as also import duty on cotton and yet not creating any agency to assess the cotton needs of Indian textile industry and regulate cotton exports -and above not banning or suspending export of cotton, even if our own mills are closing down."
In fairness to the Government, a Group of Ministers, headed by Finance Minister Pranab Mukherji met on 7 April, 2010 when it was decided, in principle that a 'prohibitive duty' be imposed on the export of raw cotton and cotton yarn, on which an inter-Ministerial committee of officials would decide on the exact quantum of levy. The meeting which was attended by Agriculture Minister Sharad Pawar, Textiles Minister Dayanidhi Maran and Commerce Minister Anand Sharma also decided to introduce a mechanism for registration of cotton yarn exporters. It was also agreed that steps should be taken to ensure a carry forward of at least 50 lakh bales of raw cotton at the beginning of the next cotton season. It appeared that the Government has heeded to demand of garment exporters, whose representative Praveen Nayyar, Vice Chairman, Apparel Export Promotion Council had repeatedly made the point that the prices of cotton yarn and consequently fabrics had increased by as much as 50 per cent since November 2009. This, he further pointed out, resulted in 10.16 per cent decline in exports during April 2008-January 2009 at $7.92 billion as compared to corresponding period in the previous year.
At very long last, sanity and wisdom prevailed on 9 April, 2010, when, vide its notification no. 38/2009-14, it declared, in public interest, its export policy "free" against Sr. No. 161 B, Tariff item codes 5205, 5206, and 5207, adding that the contracts for export of cotton yarn shall be registered with the Textile Commissioner, prior to shipment. Clearance of cotton yarn consignments shall be given by Customs after verifying that the contracts have been registered." This did result in small gains for the stake holders, as the prices did come down from Rs. 30,000 to Rs. 29,000 a candy (370 kgs.) of cotton.
Raging Controversy within Textile Family
Reacting to the Government notification involving withdrawal of 7.67 per cent of DEPB benefits and for introducing a cess on export of cotton yarn, Confederation of Indian Textile Industry (CITI) observed that theses were "wrong medicines for a genuine ailment." However, Shishir Jaipuria, Chairman, CITI said, "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 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." Jaipuria, however, requested the 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.
However, A conglomeration of a number of trade bodies of garment exporters thanked Dayanidhi Maran, Union Textile Minister, vide letter dated 19th April, 2010 by Praveen Nayyar, the authorized representative of Apparel Exporters Manufacturers Association, Garment Exporters Association, Noida Cluster, Clothing Manufacturers Association of India, Confederation of Indian Apparel Exporters, Apparel Exporters Association, Federation of Indian Hosiery Exporters, Tirupur Exporters Association and Apparel Handloom & Exporters Association, stating We are extremely happy when 10 days ago, senior Group of Ministers had chalked up a clear cut action plan to bring some sanity in the prices.
He, however, complained that while the initial announcement did have some sobering impact on prices of certain cotton fabrics, no action has been forthcoming by way of public notifications of the decisions taken in GOM meeting held in early April. This, he said, has led to the mill lobby getting emboldened and prices tend to remain firm. He also added that on one side, a notification came to put cess on raw cotton, but no announcement came for similar cess on yarn. Nayyar, in his letter dated 19th April 2010 has lamented, when he said, "We are really surprised that decisions taken at the highest levels of Government have been stuck within the Government machinery and notifications have not been issued. This is unprecedented." He added, "We are unable to understand the arrogance of the mil lobby and their association. This association claims to represent the entire value chain. However, it speaks only on behalf of the spinning mill lobby (read: CITI) which really surprises all of us, as are also members of this Organisation."
Tirupur Exporters Association (TEA) and the Apparel Exports Promotion Council (AEPC) have estimated an 11% drop in shipments over last year after a 10.30% rise in yarn (40s count) prices, among other factors. After a one-day fast observed by the unit-owners in Tirupur, some of the garment exporters associations have threatened to discontinue their CITI membership. The exporters, who form the fag end players in the textile value chain, have alleged that CITI is favouring the textile mills, who they feel have jacked up yarn prices disproportionately vis-á-vis the input costs. Raw cotton prices (Shankar 6) rose by 1.79% (from Rs.28, 000 to Rs.28, 500 per candy) in the last one month. However, yarn prices have gone up by more than 10%, say the garment exporters. The garment exporters pointed out to the vocal stand taken by CITI against the hike in raw cotton prices and its exports, CITI has maintained a stoic silence even as the exporters are likely to close the year lower with barely $9.7 billion exports.
There have been press reports suggesting that the knitwear clusters down South are not getting their regular and adequate supply of cotton yarn, which is estimated at around 27-30 million kgs. and that cotton yarn is being hoarded in view of short supply amid speculation that prices of yarn may go up sometime in April. A. Sakhtivel said that prices of 40 counts yarn have increased from Rs.139 per kg in August to Rs.170 kgs in March. He even addressed a letter to the Union Textiles Minister Dayanidhi Maran suggesting that the State-owned units under National Textile Mills Corporation are now fully modernized and capable of producing quality hosiery yarn and should be directed to produce yarn to meet the regular requirements of knitwear and apparel units.
Rakesh Vaid, President, Garment Exporters Association also has expressed serious concern over the sharp rise in prices of cotton and yarn, which is severely affecting the performance of Indian apparel industry. He added that apart from serious price fluctuations, the fabric availability has become a serious issue as weaving units are not respecting delivery commitments. He rued that cotton yarn which is exported from India is manufactured in the developed countries, and is then sold back in India and other countries, giving a tougher competition to Indian garment exports. He added that labour- intensive garment export sector calls for special consideration because it adds maximum value to the exported products, using over 95 per cent indigenous material.
Set-back on cotton production
Another reason, which I feel, has not been taken into reckoning is the shortfall of cotton production in the world. Nearer home, the Cotton Advisory Board, which met in Mumbai recently, has lowered the production estimate for the crop season ending September 2010 to 292 lakh bales (of 170 kgs. each) against the December estimate of 295 lakh bales. According to A.B. Joshi, Textile commissioner at Mumbai said, "Though there were marginal increases in production outlook in some states, Punjab is expected to produce 16 lakh bales, which is two lakh bales lower than earlier expectations, while Madhya Pradesh may see a fall of 3.5 lakh bales to 18 lakh bales." Joshi adds, "China tops the list of major cotton imp orders from India withy 31 lakh bales, Bangladesh imported 8.60 lakh bales, Pakistan 4.02 lakh bales, Hong Kong 2.18 lakh bales."
According to Textile Ministry sources, there has been a major shortfall in cotton production across the world this year. They have pointed out that China, which is a major competitor for India in apparels, has registered a 15 per cent fall in cotton production this year and is reportedly sourcing a larger quantity of cotton from India for its industry. The reports on cotton production from other parts of the world are equally discomforting.
All this adds not only the need for seriously discouraging both cotton and yarn exports, but also adds, even multiplies the urgency in doing so.
The Authorised Representative of conglomeration of garment export related trade bodies, Praveen Nayyar has demanded the following action, without any further loss of time:
- Immediate withdrawal of DEPB incentives on yarn exports and imposition of cess at the rate no less than 10% of the same,
- Suspension of yarn exports for a period of 3 months, as we are towards the end of the cotton season and we fear enormous shortages in the market, and
- A public debate on whether in a country like ours, where 300 million people still live below the poverty line, is it advisable to export basic raw materials at the expense of the value-added and job-creating finished products segments.
Some sense seemed to have prevailed on the powers that be on 19 April, 2010, when, Government press note (No.1/162/2010/cotton/Vol IV/357 notified. "Pursuant to the Inter-Ministerial meeting on steep increase in prices of cotton etc., the Government have decided that the registration of Export contracts prior to shipment of Raw Cotton (Lint)...., shall now be suspended with effect from 19.4.2010 till further orders." It further clarified, "The suspension of registration of export contracts shall extend to the applications for registration in pipeline in the office of Textile Commissioner, Mumbai for which Export Authority Registration Certificates (EARC) have not been issue. The EARCs issued prior to the closing hours of 19.4.2010 and having valid shipment period with unshipped quantity shall have to be got revalidated shipment period with unshipped quantity shall have to be got revalidated by the exporters with the Office of Textile Commission, Mumbai..."
Air in the Capital City of the country is thick with the news that a recent meeting (as recent as yesterday of the date of writing this story) of the senior officials, held at the Finance Ministry was in favour of suspending the duty drawback facility. This was reportedly on a follow-up of a meeting that Textile Minister Dayanidhi Maran had had with Finance Minister Pranab Mukherji a day before.
Let us hope and pray that the news comes true, sooner than later. However, no right thinking person can excuse the Government for the extreme delay that matters of such urgent and public importance should take so long and that it should call for such level of persuasion and lobbying.