In a representation to the Prime Minister during his visit here on Friday, ICMF chairman BK Patodia stated that the policies of the government encourage fragmentation of the industry and evasion of taxes.

Though a reduction in the hank yarn obligation finds a mention in the ICMF representation, the apex body of the spinning industry has devoted most part of the memorandum to highlight a much-needed rationalisation of the excise duty structure for cotton yarn, cotton fabrics and the processing segment.

The ICMF has also kept up the offensive against the excise exemption granted to small spinning mills. ``The Indian textile industry is the second largest employer, after agriculture, and foremost foreign exchange earner. This industry has been passing through a severe crisis for the last five years. Urgent policy corrections are required to keep this industry vibrant and healthy,'' Mr Patodia stated.

Technologically, spinning mills cannot be set up on a small scale. The exemption has resulted in large-scale units fragmenting themselves into smaller ones and creation of small-scale mills, using under-invoiced second-hand machines.

Several large-scale units which are unable to compete, given the 9.20 per cent duty advantage given to small units, have begun evading excise duty, Mr Patodia said, seeking withdrawal of the exemption and a reduction in basic excise duty from the current 8-4 per cent .

According to Mr Patodia, the distortions in the duty structure in the processing sector should be removed to bail out the ailing composite mills. ``Independent processors have a concessional `stenter duty' which is less than half of that on composite mills. The hand processors have been given complete exemption from excise duty and allowed to use power-operated machines for most of the processes.

The co-existence of a high duty on composite mills and concessions to the other sectors has resulted in 117 composite mills closing down, rendering two lakh workers unemployed and reducing the share of composite mills in India's total fabric production to a mere 4.4 per cent,'' the representation to the PM stated.

Hence, the duty on processed fabrics should be reduced to a total of 8 per cent and this should be uniformly levied on all segments of the fabric processing industry. Exemption should be restricted to genuine hand processors who do not use any power-operated machines, he said.