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Budget 2021: India's garment industry urges govt to withdraw 10% customs duty on cotton

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While the announcement of the Mega Textile Park Scheme to set up 7 new textile parks has been welcomed by the industry, it has expressed concern over the imposition of a 10% Basic Customs Duty on cotton.

Budget 2021: India's garment industry urges govt to withdraw 10% customs duty on cotton
The Narendra Modi government's Union Budget 2021 has invoked mixed reactions from India's textile and garments industry.
While the announcement of the Mega Textile Park Scheme to set up seven new textile parks has been welcomed by the industry, it has expressed concern over the imposition of a 10 percent Basic Customs Duty (BCD) on cotton. The finance minister on Monday announced that the government is raising customs duty on cotton from nil to 10 percent to benefit farmers.
Manufacturers and exporters of cotton textile products have said that the 10 percent duty is unlikely to benefit farmers. They have appealed to the government to withdraw the import duty to sustain the global competitiveness.
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Southern India Mills’ Association (SIMA) chairman Ashwin Chandran said the announcement has come as a severe blow to the ailing cotton textiles and apparel industry.
"India has been globally competitive only in the cotton textile manufacturing, thereby accounting for 80 percent of its total exports. Cotton and cotton waste, which is currently under nil rate of import duty is being subjected to 10 percent import duty through the budgetary announcement comprising of 5 percent BCD and another 5 percent Agriculture Infrastructure and Development Cess (AIDC) on cotton and 10 percent BCD on cotton waste has come as a severe blow for the ailing cotton textiles and apparel industry," Chandran said.
India is the largest producer of cotton in the world, even as Indian cotton manufacturers and exporters have been battling lowered demand due to the coronavirus pandemic. However, Chandran said levy of 10 percent duty will not benefit the cotton farmers as the normal import of 12 to 14 lakh bales per year accounts only around 3 percent of Indian cotton production and consumption and such cotton is not produced in India.
Manoj Patodia, chairman of Cotton Textiles Export Promotion Council (TEXPROCIL) also said there is no case for an imposition of import duty on cotton since there has been a decline in imports of cotton by over 70 percent between January to November 2020, as compared to the same period in 2019.
However, an imposition of import duty is a concern as it will increase the domestic prices of cotton, which will now be based on the import parity price plus the customs duty. This in turn will increase cost for the value added products like fabrics , made-ups and garments, manufacturers argue.
"After the introduction of BT cotton that accounts over 97 percent of the cotton produced in the country, the cotton textile industry has to import ELS cotton, organic cotton, contamination free cotton to the tune of 10 to 12 lakhs bales per year to meet the demands of the global customers and also the value added made-ups and apparel segments of domestic market. The country is already flooded with cheaper imports of readymade garments from South Asian Free Trade Area (SAFTA) countries and facing crisis," Chandran added.
Patodia said the duty needs to be withdrawn in the interest of the textile and clothing sector and its orderly development, especially as India is a cotton surplus country, and because it could have an adverse impact on employment and investments in the value-added textile and clothing sector.
SIMA's Chandran said the inverted duty structure in the GST is also defeated with this levy as the cotton value chain attracts 5 percent GST and will add the cost to the customers and discourage value addition.
Raja Shanmugham, president of Tiruppur Exporters' Association added that rising cotton yarn prices have been a burning issue on ground in this textile cluster over the past two months.
"At a time when we have been pleading with the government to regularise prices, import duty on cotton derails the concept of regularising or maintaining the existing level of prices. It adds salt to the wound and has created uncertainty among enterprises here who are using cotton to manufacture garments. This could have been avoided," he added.
However, textile and garment manufacturers have welcomed the Mega Investment Textiles Parks (MITRA) scheme, which they believe will facilitate 40 to 50 leading textile players to become ‘global champions’. "Tamil Nadu being the largest textile manufacturing State, is planning to develop three mega parks under MITRA, Andhra Pradesh and Telangana already have one such park each. This would facilitate attracting large scale investments including FDI and JVs," Chandran said.
TEXPROCIL's Patodia added that the scheme will enable the textile industry to become globally competitive, attract large investments and boost employment generation.
But, Shanmugham said while setting up of seven textile parks will be a boost to the entire value chain of the industry, it doesn’t stand to benefit the Tiruppur cluster, which is one of the largest textile clusters in the country. This is because while the government is looking to attract large textile players through these mega parks, Tiruppur largely comprises small and micro enterprises, who do not stand to benefit from the announcement, at least in the short to medium term.
He also welcomed the government’s thrust on research and development after the finance minister announced on Monday that the modalities for the National Research Foundation have been worked out and will have an outlay of Rs 5,000 crore over five years.
This, Shanmugham believes will boost the textile industry, especially in Tiruppur, "We are a design-driven industry. It was a long plea from Tiruppur that we need innovative spirit percolated among manufacturers who are mainly small and micro enterprises that need to be hand held. Now with this foundation, we hope that we are able to realize that dream."
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