The Hindu Business Line : Mills yet to pass on yarn duty benefits, say dealers

NEARLY ten days after the Union Budget dispensing with the mandatory `Cenvat' duty for cotton yarn and fabric producers, the mood among the powerloom-dominated textile producers in the State's Erode/Salem region ranges between hope and despair.

The small weavers-cum-traders producing fabrics using their own plain shuttle weaving machines hope that the removal of the excise duty will revive the hectic fabric buying activity seen till two years ago when they were outside the excise net.

However, some of the major yarn/fabric dealers in the powerloom industry despair that they still faced difficulties in procuring duty-free yarn supplies from the mills which, according to weaving industry sources, are yet to pass on the full benefit of duty-less yarn deliveries, thereby affecting the end-consumers costs benefits.

"With fabric export season to meet December Christmas supplies to catch up in a month's time, we expect the merchant-exporters from markets such as Delhi and Ahmedabad, who outsource yarn-dyed fabrics from our areas, to place orders as the Cenvat issue has been resolved now," said Mr Govindaraj, a powerloom weaver from Ilampillai near Salem.

Mr Govindaraj maintains that the removal of the 9.2 per cent yarn duty and the 10 per cent duty on fabrics "has clearly made our fabrics price competitive compared to those produced by our competing countries like China. Our woven fabric had a price differential of about a dollar when compared to the fabrics from China and the removal of the Cenvat duty has narrowed down the price parity to India's advantage."

Mr Govindaraj who is also the Secretary of the State Powerloom Cloth Manufacturers and Merchants Federation, is of the view that the abolition of the Cenvat duty system would also give indirect pep to powerloom unit owners undertaking job works, who may stand to get increased work and higher conversion charges.

In the face of many weaving units taking up new export work orders in view of the cost advantage , there will be to some extent a vacuum in the production lines catering to local markets.

This would benefit those seeking to meet domestic market production, he feels.

When Cenvat was in force, powerloom weavers like him, who depended on supplying their finished fabrics to upmarket export traders, had to block their own funds to pay first the excise duty and receive their payments for their product after two months.

This condition forced many weavers to either reduce their volume of operation or suffer fund crunch. Now, this situation had been eased, he added.

Even as Mr Govindaraj strikes an optimistic posture, there has been grouse from his powerloom weavers fraternity which is aggrieved that despite the Government removing the excise duty on yarn, many spinning mills are still hesitant to pass on the dutyfree yarn to the weavers.

"Yarn price has not come down as expected with the abolition of the excise duty and the duty benefit has still not been transferred to the weavers," claimed Mr M.S. Mathivanan, the Chairman of the Confederation of Indian Weaving Industry and former chairman of the Powerloom Development and Export Promotion Council.

Unlike in centres like Ichchalkaranji in Maharashtra, where the spinning mills fix prices after talks with the powerloom weavers, mills in the South fix their rates unilaterally, he said.