The textiles ministry has decided to drop its demand for an increase in duty drawback to textile exporters in the wake of depreciating value of rupee against the US dollar and falling prices of raw materials like cotton. The industry, however, says the move will reduce exporters? competitiveness in the global market.
Exporters have been asking for a higher duty drawback and continuation of interest rate subvention at least till the end of this fiscal, seeking to make up for the loss on account of high input costs and over 12% rise in the value of rupee vis-?-vis dollar in 2007. Supporting their cause, the textiles ministry last month moved a Cabinet note asking for a 2% hike in the drawback rate. Since then, the rupee has fallen to its eight-year low of Rs 49 a dollar, while cotton prices have fallen around 21% in the two months to October 15 at 61.66 cents/lb. In the light of this, the ministry has now decided not to take up the issue with other ministries for the time being.
?There are positive signs for the industry as the rupee has depreciated and cotton prices have come down in the international market. At this juncture, it would be improper to demand a hike in duty drawback,? a senior official in the textiles ministry said.
However, the Cabinet note would not be withdrawn and the issue would be taken up at the right time. ?The global situation is very uncertain. In the future, we may need to take up the issue again and hence we are not going to withdraw the cabinet note,? he said.
Opposing the ministry?s views, the Confederation of Indian Textiles Industries (CITI) said this would lead to Indian exporters losing market to firms from China and Pakistan, which extended sops to their respective industries. ?Even as the rupee is depreciating, exports of textiles and apparel are falling. In addition to this, many firms are suffering from power cuts and have to use captive electricity, which is costly. All this makes the operations of exporters unprofitable and they stand to lose market to competitors from Pakistan and China,? CITI secretary general D K Nair said. During the first eight months 2008, exports to the US has fallen 1.56% to $3.54 billion despite the fall in rupee.
Earlier this year, China and Pakistan extended various sops to the industry to push textiles export. China enhanced the VAT refund rate on synthetic from 9% to 13% and on cotton from 11% to 13% with effect from August. At the same time, Pakistan introduced a scheme to facilitate 5% refund of interest on investment in machinery and 3% interest subvention on credit to meet working capital requirement. It also started providing R&D assistance at 6% to garment exporters.
In India, the finance ministry cut duty drawback rates for higher quality silk fabric, wool tops, woollen yarn, grey cotton yarn and a few other items as rupee depreciated more than 10% in the currency market this fiscal, increasing export realisation. The duty drawback and interest rate subvention were part of a multi-crore relief package extended against losses incurred due to rupee surge last year.