The Centre is likely to withdraw the duty drawback benefit on raw cotton exports. The export sop is offered to certain agri-commodities that have been out-priced in the global market. The relief on raw cotton exports was announced in February under the Vishesh Krishi and Gram Udyog Yojana (VKGUY) with a retrospective effect from April 1, 2008.
The Union textile minister, Dayanidhi Maran, who was in Mumbai to address an industry gathering admitted that the sector was up in arms against the sop offered to raw cotton exports. When asked by ET whether the sop, which expires on June 30, 2009, would be extended, he said: “The industry has demanded that we should not continue with it. There is a controversy over it. Industry is of the view that this has increased the domestic yarn price. We are aware of this and we will go with their decision,” he said.
Under the VKGUY scheme, exporters are entitled to a 5% duty credit on the free on board (FOB) value of their shipments. So, if a company exported goods worth Rs 100 crore it can claim duty relief of up to Rs 5 crore on goods it imports. Alternatively, it can sell the Rs 5-crore licence in the secondary market at a discount to another importer. The scheme includes a number of farm products ranging from soyameal, cardamom, herb extracts, flowers and fruits to vegetables.
The textile industry itself is against the benefit. “We have become a country of lobbies. Sectoral incentives should not be considered.Value-added products should be given preference, and this would not only trickle down the value chain but also improve job creation,” said Premal Udani, chairman, board of trustees, Clothing Manufacturers’ Association of India.
Even though the VKGUY scheme was extended to cotton on a retrospective basis in February, the export estimates for the year are modest compared with the previous year.
According to industry projections, cotton exports for the current season could be around 40-50 lakh bales, much lower than the 2007-08 exports of 85 lakh bales. The Cotton Advisory Board had earlier estimated that exports would touch 50 lakh bales by the end of the current season in September.
In the past year while international prices were depressed, domestic cotton prices were much higher due to a 40% hike in minimum support price (MSP) that kept most traders and exporters from purchasing the cotton.
While the 5% export incentive may have come as a relief, the current year’s export estimates are still down 26% from the previous year’s.
Source : The Economic Times