The Hindu Business Line : DGFT order on worn, used cloth puts Gujarat units in a bind

PROCESSING units of imported worn and used cloth at Kandla special economic zone in Gujarat are facing rough weather following a notification by the Director-General of Foreign Trade (DGFT) restricting the sale of processed worn and used cloths in the domestic market.

The processing of worn and used cloth is new business in the country, as many such processors in the US and Canada are showing interest in outsourcing from India for export purposes.

In fact, lured by the DGFT's open general licence policy and special economic zones, many units from Canada and the US have shifted their production based in Kandla special economic zone. A total of 11 units with foreign direct and local investments are already working in the zone, while many such units are expected soon.

The units under operation directly employ about 5,000 workers and another 15,000 jobs are created indirectly. But DGFT's notification restricting the sale of such cloths in the domestic market has posed a problem for these units as they have been denied the facility to sell any cloth to the domestic market.

It is stated by a processing unit that the used and worn cloths are imported from the US at Kandla, where these cloths are sorted in different grades.

After exporting about 70 per cent of processed cloths largely to Africa and Latin American countries, the balance of about 30 per cent is usually sold in domestic market after paying applicable Customs duty.

But with the recent restriction on the sale of such cloths in the domestic market, these units are unable to dispose off their remnant stocks in local market, although it is difficult to export the entire quantity of processed worn and used cloths due to cost factors.

However, promoters of the units at Kandla wonder how the DGFT can impose restrictions on the processing units at special economic zones, which basically operate for export purposes.

A source said that they were aware that many international companies are dumping the used cloths in Indian market. Therefore, the DGFT should put restriction on direct imports for trading purposes but such a restriction should not be on SEZs units because they import worn and used cloths mainly for export purposes.