The textiles ministry has moved a Cabinet note advocating 2% increase in duty drawback to the textiles sector.

Although such incentives would breach World Trade Organisation (WTO) norms, they will help protect the sector?s competitiveness in the global market the ministry argues.

The ministry had earlier approached the finance ministry to facilitate a higher refund. However, the finance ministry rejected the demand and trimmed the incentives on a few products used as raw materials.

Following this, the textiles ministry moved the Cabinet note late last month. Duty drawback moderates the affect of customs duty, central excise duty and service tax paid on exported items.

?The duty drawback is prerogative of the finance ministry and it has decided to reduce the rate. We differ. There is a forum to discuss such issues. We have already sent a note asking for comments from various ministries,? a top official in the textiles ministry said on the condition of anonymity.

It is pertinent to note that subsidies were the main reason for the failure of discussions between developing and developed members of WTO. The United States provides $4 billion in subsidy to around 20,000 cotton farmers. This in turn impacts the livelihood of peasants in African countries, which have been demanding the reduction in the assistance by the US. The US, however, has been avoiding any further discussions on the issue.

?We are aware that such incentives are non-WTO compliant but a raise in duty drawback is essential as input costs have increased. Also, the competitiveness in the global market would fall as China and Pakistan have enhanced assistance to their respective sectors,? the official said.

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 industry feels the reduction in the incentives would lead to fall in textile exports.

?The textiles sectors in all the three countries are competing with Vietnam and Bangladesh. While more sops in China and Pakistan would boost their exports, the Indian firms would lose out,? Confederation of Indian Textiles Industries secretary general DK Nair said.

Industry bodies are expecting lower exports this year as compared with $21.46 billion in 2007-08.