The Hindu Business Line : Opportunity in a crisis

Global meltdown presents a good opportunity for India in areas where the country has a positive image in the international market and where the purchased product is a commodity. Indian textiles has found acceptance, the world over, even if the prices are 1-2 per cent higher, because buyers find it easy to communicate with Indian sellers vis-a-vis the Chinese. But, currently, our prices are about 10 per cent higher. The gap needs to be narrowed and this period can be used to improve India’s market share substantially, despite the contraction in demand.

In India, the manufacturers are facing four obstacles to lower prices:

Higher raw material prices: Polyester and cotton — the two important raw materials used by the Indian textile Industry — are 14-15 per cent higher than global prices. Reasons: Polyester fibre has a 5 per cent Customs duty and 4 per cent SAD. Cotton prices are ruling higher due to support prices that are essential to help farmers remain profitable; international prices, on the other hand, have crashed. If a 10 per cent duty is imposed on cotton imports, the domestic mills can buy Indian cotton in preference to imports, and CCI can refrain from buying cotton at support prices. Choosing the advance licence route to get raw materials at international prices makes the exporter lose the drawback given in lieu of other duties and the taxes paid in the manufacturing process; and is, therefore, not an option. This handicap can be overcome by giving back this excess cost of raw material as an additional drawback (domestic producers protection cost reimbursement )

H igh logistics cost: Indian logistics cost in GDP is close to 12 per cent as against 6 per cent in the developed world. Most of the cotton and finished goods are transported by road, which is expensive. Sea transport should be facilitated. The cost of shipping containers from Karachi to Tuticorin is Rs 25,000, but Rs 75,000-85,000 from Gujarat to Tuticorin because foreign vessels are not allowed between two Indian ports. Railways should give preferential treatment to transport raw materials to industry.

Non-refund of State levies: While duties and taxes collected by the Centre is given back, the taxes collected by the State are not refunded. There must be a mechanism to give back State duties to exporters

High interest costs and non-availability of dollar loans even for working capital: The higher interest cost adds at least 3-4 per cent to the manufacturing cost of textiles, as the raw material is an agricultural product that is harvested once a year. Efforts should be made to give dollar loans at libor rate plus a maximum of 1.5 per cent to exporters to help them lower interest costs

If the above recommendations are met, textile exports will go up significantly, ensuring employment for at least another 25 lakh workers in a short time. The global meltdown and China becoming non-competitive provide an opportunity that India cannot afford to miss. The cost of all the schemes that have been listed will be less than the losses suffered by CCI in resorting to support price operations By critically studying the various industry segments with the help of experts in the respective fields; reorienting the various incentives/subsidies in such a way that it makes exports cheaper without attracting anti-subsidy dumping duties, we can actually benefit from today’s crisis which has made many strong exporting nations weak. The domestic market will remain buoyant as long as jobs are generated and all subsidies and give-aways should have a direct link to job retention/creation.
(The author is Chairman, Loyal Textile Mills Ltd. blfeedback@thehindu.co.in)

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