The Hindu Business Line : Cotton association calls for removal of 3% CST

Currently, transporting cotton bales from production centres in north India to spinning mill areas, especially down south is proving costlier than shipping cotton from Indian port to overseas destinations.

Our Bureau

Coimbatore, Sept. 30 With the country’s cotton production in 2007-08 projected to go beyond 300 lakh bales, the South India Cotton Association (SICA) has sensed more challenges the increased cotton crop is going to throw on various intermediaries and end-users in the market place this year.

The SICA has called for a revamped cotton logistics aimed at reducing the cost of transport of both seeded and lint cottons.

It also wants early ending of the 3 per cent Central Sales Tax levy on cotton being bought on inter-state sale in view of the levy being non-vatable.

Addressing the 28th annual general meeting of the SICA held here on Sunday, the President of the association, Mr C. Soundara Raj, has suggested a modular transport for cotton using rail-road-waterway that can be formulated by the Ministries of textiles and transportation. Currently, transporting cotton bales from production centres in north India to spinning mill areas, especially down south is proving costlier than shipping cotton from Indian port to overseas destinations.

Transportation woes

Mr Soundara Raj cited that a mill in Coimbatore now incurs Rs 67,500 as freight for moving 150 bales of cotton.

Whereas the sea freight for the same quantity of cotton being shipped from the Indian port to overseas destinations such as China, Indonesia or Thailand is just $250 (Rs 10,000).

The cost of transportation of cotton from Punjab to South is even more higher at Rs 1,20,000.

As for the CST on cotton, the trade and mills in South, which rely heavily on import of cotton from Western and Northern production zones, are hard-pressed to seek its elimination because the 3 per cent levy is added to their costs in the absence of vatability of CST.

Seeking abolition

Making a reference in this regard, the SICA secretary, Mr K.N. Viswanathan, told the members that the recently held Union Textile Ministry-sponsored ‘Tex Summit 2007’ conclave had got one of its working groups on textile inputs recommending abolition of CST on cotton.

With no way to motvat this levy, the textile exporters are bound to export it. The sub-group of the conclave had also strongly suggested for removal of the special additional duty on all fibres and the 4 per cent SAD on cotton imports, total removal of import duty on extra long staple cotton, besides removing all the textile products from the purview of the essential commodities act, the SICA secretary added.

Exports

The SICA has also exercised much on the higher quantum of cotton exports anticipated this year with the reduction in the US crop.

In this scenario, continuing with the export subsidy on cotton should be reconsidered because it would indirectly add to the price pressures on domestic cotton markets.

By subsidising cotton exports (at one per cent on the f.o.b. value), India is passing on the subsidy to international trade.

Pointing out the bottlenecks in the fund flow required in the cotton chain across the growers-ginners-trade-mills link, the SICA citing a study has noted that cotton as a crop undergoes a turnover at Rs 31,416 crore at the hands of farmers, at a turnover of Rs 32,165 crore and by the time it reaches the spinners/exporters its total turnover is close to Rs 80,000 crore but bulk of this do not get the borrowing exposure from banking system.

SICA felt cotton be accorded a system of commodity lending through banking sector as is available under the commodity credit corporation in the US.

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