The Hindu Business Line : Man-made fibre industry seeks progressive duty structure

THE man-made fibre industry has called for removal of what it calls the cotton bias of the textile policy through a fiscal regime that brings about progressive convergence of duty regime among all fibres.

To set this in motion, the MMF industry has suggested a progressive Customs duty structure to graduate through raw materials into finished goods and a converging excise duty regime covering all textile fibres.

The 2005-06 Budget had made an attempt on this count but failed to remove fully the structural anomalies. While the distortion in the Customs duties within the man-made fibre genre continued to stick out, the discrimination in the excise duty structure between cotton and MMF remained even more glaring, say sources in the MMF industry.

A representation on behalf of the MMF industry was made recently to the National Manufacturing Competitiveness Council (NMCC) by the Federation of Indian Chambers of Commerce and Industry (FICCI).

Within the MMF categories, the Customs duty build-up between polyester and acrylic that distorted duty differentials between them was glaring. Crude oil being basic raw material for all MMFs, the acrylonitrile, which is the intermediary raw material for acrylic fibre, attracted 5 per cent Customs duty rate, whereas, the purified terepthalic acid (PTA) and monoethylene glycol (MEG) — the principal raw materials for polyester staple fibre (PSF) — were charged 15 per cent. This has left the duty differential for the manufacturers of PSF/partially oriented yarn (POY) at nil and acrylic staple fibre at 10 per cent.

The duty distortion between the raw materials of PSF and acrylic by itself makes an interesting reading, according to the MMF industry sources, as the Customs duty on acrylonitrile was reduced twice in the past six months from 15 per cent to 10 per cent in September 2004 and to 5 per cent in the latest Budget.

In the case of polyester, producers of PTA and MEG could however enjoy a 10 per cent duty differential derived in turn from the Customs duty on their raw material (namely paraxylene or ethylene that attract only 5 per cent Customs duty), the same is denied to PSF manufacturers, the sources argue, saying that this discriminatory duty build up at one single raw material stage has been seriously affecting investments in downstream industries processing polyester-based textiles, including garmenting, in man-made fibre, the FICCI petition said .

In the case of excise duty, too, for the same product within the PSF category there is duty differentiation. Draw texturised yarn (DTY) is a finished product from partially oriented yarn (POY) and is used for producing fabrics by knitting and weaving mills. DTY is produced both by composite units, which make both POY and DTY, and independent texturisers producing only DTY. The recent Budget reduced the excise duty on DTY to 8 per cent for the latter set, whereas the former continue to be charged 16 per cent.

This, according to the MMF industry sources, amounts to penalising the efforts of the composite mills to achieve scales of economy in producing DTY and will ultimately encourage fragmentation of this industry. Leading integrated POY/DTY producers such as Century Enka, Indo Rama, Nova, Modern, Welspun and Sanghi would be forced to demerge to remain competitive, whereas the mantra for a strong domestic textile industry is to achieve higher volume.

On the excise duty regime between cotton and polyester, the concessional excise duty extended for cotton at 4 per cent, according to the MMF industry sources, has come as a sharp distortion in the textile value chain, enough to deter large-scale downstream investment and growth of polyester sector which is still burdened at 16 per cent excise rate. Though synthetic textiles constitute 60 per cent of global textile trade and, hence, India needs to give fillip to right kind of fibre mix to enhance its textile export share in the world market, the discriminatory tariffs have spelt a slowdown in growth for the polyester to a moderate 4 per cent in 2004.

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