Indian Cotton Yarn Export Decline

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Context:  India used to export 32% of its cotton yarn production three years ago. This has fallen to 27% now. 

Relevance: GS 3 Indian Economy and issues relating to planning, mobilization, of resources, growth, development, and employment.

Indian Cotton yarn Industry:

  • Cotton plays an important role in the Indian economy as the country's textile industry is predominantly cotton based.
  • India is one of the largest producers as well as exporters of cotton yarn.
  • The textile industry is also expected to reach US$ 223 billion by the year 2021.
  • The states of Gujarat, Maharashtra, Telangana, Andhra Pradesh, Karnataka, Madhya Pradesh, Haryana, Rajasthan, and Punjab are the major cotton producers in India.

Cotton Textile Export Promotion Council:

  • The Cotton Textile Export Promotion Council (TEXPROCIL) takes part in national and international events to enhance the visibility of Indian products, advertises and promotes Indian products in various media vehicles such as fashion magazines, event-related pull-outs, India reports and leading trade magazines, and organizes buyer-seller meets (BSM) and trade delegation visits.

Cotton Yarn Export:

  • The cotton yarn sector has been one of the pillars of the Indian textile industry and is also highly modernized. Driven by technology, it provides sustainable income to farmers.
  • Even though the cotton yarn is a value-added product, it has been excluded from the export benefits such as interest subvention, MEIS (Merchandise Exports from India Scheme) and the ROSCTL (Rebate of State and central taxes and levies) schemes.
  • The textile industry has voiced alarm over the consistent fall in cotton yarn exports in the last three months due to a sharp decline in demand in importing countries such as China, Bangladesh and South Korea, besides duty-free access given by China to competing Pakistan.
  • India’s cotton prices were higher than international prices and the trade war between China and the U.S. had affected the sentiments in the global market. While Indian yarn attracts 3.5% duty in China, Vietnam has duty-free access.
  • If the current trends of declining exports continue into the next quarter, it will lead to the closure of several spinning units in the near future, resulting in layoffs.
  • Considering the large-scale investment in the spinning sector and sluggish demand in the domestic market, exports are the only avenue to ensure uninterrupted production and capacity utilization.

Way Forward

  • The government should include cotton yarn in the interest subvention scheme and also rebate the embedded taxes such as agricultural cess, mandi tax, power and fuel surcharge which incurred in the production process.
  • the government should provide a one-year moratorium for loans to bring in liquidity.
  • The ROSCTL scheme which rebates these levies should be extended to the cotton yarn sector at the earliest.

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