Indian Cotton Textiles Suffering Serious Disadvantages due to Tariff Issues in Major Markets

Indian Cotton Textiles Suffering Serious Disadvantages due to Tariff Issues in Major Markets

New Delhi, Monday, February 11, 2019: Shri Sanjay Kumar Jain, Chairman CITI stated that India’s cotton yarn and fabric exports are struggling because of the duty disadvantage faced by the Indian exporters in major markets. As indicated in the table below, there has been continuous decline in exports of cotton yarn and fabric during 2013-14 to 2017-18. India’s exports of cotton yarn declined by 25% from US$ 4,570 mn. in 2013-14 to US$ 3,443 mn. in 2017-18. In the same period fabric exports declined by 7% from US$ 4,941 mn to US$ 4,598 mn.

India’s Exports of Cotton Yarn and Fabric (Values in US$ Mn.)

  2013-14 2014-15 2015-16 2016-17 2017-18 % change
Cotton Yarn 4,570 3,957 3,624 3,353 3,443 -25%
Fabric 4,941 5,317 4,793 4,521 4,598 -7%

Data Source: CITI Analysis based on DGCI&S data

Mr. Jain pointed out that Indian spinning mills performed well in exports during 2013-14 when the cotton yarn was covered under  schemes such as 2% incremental export incentive, 2% interest subvention and 3% focus market incentive and the sector could penetrate into alternate markets other than China. However suddenly all incentives were withdrawn leading the spinning mills high and dry.

CITI Chairman highlighted that China which is the largest importer of cotton yarn has shifted from India to Vietnam/Indonesia as they have duty free access while Indian yarn carries 3.5% import duty. From 2013 to 2017, there has been a decline in India’s cotton yarn exports to China by 48% while exports from Vietnam and Indonesia has increased at a remarkable rate of 129% and 55% respectively in the same period as indicated in the table below:

China’s Import of Cotton Yarn from Major Suppliers (Values in US$ Mn.)

Rank Supplier 2013 2017 % change
1 Vietnam 910 2,088 129%
2 India 2,175 1,129 -48%
3 Indonesia 239 372 55%

Data Source: UN Comtrade database 

The duty differential for cotton yarn for various countries is indicated in the table below:

Import duty by EU, China, Turkey and South Korea on India and its competitors on cotton yarn

Countries EU China Turkey South Korea
India 4% 3.50% 5% 5%
Bangladesh 0% 3.50% 0% 0%
Cambodia 0% 0% 0% 0%
Pakistan 0% 3.50% 3.20% 8%
Turkey 0% 3.50%
Vietnam 3.2% 0% 3.20% 0%
Indonesia 3.2% 0% 3.20% 0%

He further stated that India’s raw cotton is going to various markets at zero duty. India exported US$ 1894 mn. worth raw cotton in 2017-18. Exporting of raw cotton bales instead of value addition by converting to yarn and fabric is leading to loss of valuable foreign exchange, employment and better remuneration to farmers.

Mr. Sanjay Jain also pointed out that similarly fabric exports from India are at serious disadvantage vis-à-vis exports from competing countries due to duty differentials in leading exports markets. Markets like EU, China, Turkey and Vietnam impose an import duty in the range of 8-12% on Indian fabric while duty free access is given to countries such as Pakistan, Cambodia, Bangladesh and Cambodia.

Import duty by EU, China, Turkey and Vietnam on India and its Competitors on Cotton Fabric

Countries EU China Turkey Vietnam
India 8% 10% 8% 12%
Bangladesh 0% 10% 0% 12%
Cambodia 0% 0% 0% 0%
Pakistan 0% 0% 6.4% 12%
Turkey 0% 10%   12%
Vietnam 6.4% 0% 6.4%  
Indonesia 6.4% 0% 6.4% 0%

Chairman CITI said that falling of Indian cotton yarn and fabric exports is impacting the whole value chain from farmers, spinners to weavers/knitters as there is considerable exportable surplus in country but we are not able to be overcome the tariff disadvantage despite being competitive in both spinning and weaving. As per the Financial Stability Report by RBI, the stressed advanced ratio of textiles sector stood at 18.7 in September 2018. Further, he highlighted that growth in clothing has not been supportive to consume the extra capacity leading to pressure on the yarn and fabric capacities. The exports of garments has declined from US$ 17.4 billion in 2016-17 to US$ 16.7 billion in 2017-18.