This will make Indias cotton available to foreign buyers at cheaper rates than it is available to the mills in the country when yarn prices are falling and the textile industry is facing several hurdles, K N Viswanathan, secretary, South India Cotton Association (SICA) said.
It would place the competing countries like China, Pakistan and Bangladesh in an advantageous position, he added.
The textile industry has urged the Centre to withdraw this incentive for cotton export to protect the ailing textile industry and safeguard jobs of millions of people.
Srinivasan said the cotton export incentive would benefit only the middlemen, particularly the cotton exporters, and not the farmers as they sell their cotton during October - January.
He said the government appeared to be encouraging the export of raw material as the duty drawback available to export of yarn was only 4%. It was only a reimbursement of duty already paid. The spinning mills also spent Rs 3 to Rs 5 a kg for the transportation of cotton to the mills and pay State levies ranging from 4% to 6%.
Cotton which does not suffer any duty is given 5% incentive, that too with retrospective effect, he added.
Srinivasan said the Indian textile industry, which has been ailing due to the over 45% increase in the minimum support price for cotton, hardening bank interest rates, acute power shortage, global financial meltdown, could get only very negligible benefit from the two stimulus packages announced by the Union government. The industry also did not get any support from the interim Budget announced recently.