After a hue and cry by the organised sector, the exemption was withdrawn in the 1997-'98 Budget of P Chidambaram. However, the 1998-'99 Budget presented by the current finance minister during his earlier stint left out small mills from the duty net. The Budget, while granting exemption to the small spinning mills, increased excise duty on cotton yarn to the present level of 9.20 per cent.

``Bulk of cotton yarn is produced by medium and largescale mills which provide more employment opportunities. The small mills do not have the compulsion to modernise and hence their investment is also low,'' an industry source pointed out. The small mills, with their low investment and tight control on overheads, have no doubt become a threat to the larger ones. According to sources, around 600 units went out of the Excise department's net here in Coimbatore region after the exemption was announced.

Small mills, it is pointed out in a comparative study made by the organised sector, incur a total cost of around Rs 71.78 a kg compared to Rs 78.30 a kg incurred by larger ones for 20s cotton yarn. Considering the excise duty advantage, small mills stand to gain around Rs 12 a kg in the case of cost of production of 20s yarn and around Rs 24 a kg in the case of 40s yarn.

``The unfair competition has led to closure of mills in the medium and large scale category. When the offtake is poor it becomes more difficult for us to push our yarn,'' spokesperson forSouthern India Mills Association (Sima) said.

Members of the Powerloom Development and Export Promotion Council (Pdexcil) had a different experience. According to them, the unfair competition has led mills in the organised sector to evade excise duty. ``Some of the mills openly tell us about their inability to pay the duty. This adds to our problems if we are to claim duty drawbacks,'' Pdexcil chairman Mathivanan claimed recently.