Punitive duty on cotton exports may lead to ‘supply constraints' .

Chennai, April 8 While welcoming the Centre's proposal to do away with the 7.5 per cent DEPB benefit for cotton yarn exports, Mr Manikam Ramaswami, former Chairman SIMA, said that the proposed ‘prohibitive duty' on export of raw cotton and cotton yarn would be counter productive.

Reacting to reports that such a ‘punitive' measure was being considered by an inter-Ministerial committee of officials, Mr Ramaswami pointed out that across the country textile industry had come out of the slow down thanks to the policy support of the Government.

However, measures to curb export of raw cotton and yarn could be counter productive as it could cause ‘supply side constraints,' he said.

If the move to control prices of cotton in the domestic market was to affect the remuneration of farmers, the farmers would simply cut back on cotton acreages. Why would the domestic farmer settle for less than international prices? he asked.

On the point of yarn prices going up, Mr Ramaswami said there was a global short supply of yarn because new capacity additions had not happened. Capacity utilisation had also been hit because of labour shortages in China, shortage of fuel in Bangladesh and power shortage in Andhra Pradesh and Tamil Nadu which produce more than half of India's supply of yarn.

Therefore, international prices had shot up and it did not specifically affect the competitiveness of the Indian industry, Mr Ramaswami said.

In Kolkata, leading industry players had reported a growth of 20-30 per cent in turnover while small players had seen significant growth. However, in Tamil Nadu, particularly the textile belt in Tirupur had been affected due to local conditions.

Steep increases in labour costs, power shortage and high cost measures for pollution mitigation had affected the competitiveness. The industrial units need to modernise and focus on efficiencies, Mr Ramaswami said.

Rapid industrial development in Tamil Nadu had contributed to labour shortage and wages going up, need for investments in ‘zero liquid discharge' to address pollution was a high cost measure that added a cost Rs 25 to a kg of fabric. The industry should be allowed to look at marine discharge as an alternative. Tirupur units should also look at investments to modernise and automate industrial operations, he said.

Source : Business Line