The government’s decision to raise the minimum support price (MSP) of raw cotton by 47 per cent and reduce the duty draw back rate for exporters in the range of 20-60 per cent has invited adverse reaction from industry body Northern India Textile Mills’ Association (NITMA).
In a release issued today, NITMA said this (the decision) has forced it to cut production by 25 per cent.
The decision to raise the MSP with effect from September 1 was notified today.
Textile mills in northern India exported textile products worth around $3 billion in 2007-08, out of the country’s total textile exports of $20.5 billion. This was almost 20 per cent short of the target of $25 billion for the year.
“The MSP of cotton during the last several years was raised by 5-10 per cent. But this year, it is running out to be 38-47 per cent for different varieties of cotton. At these rates, textile mills have no option but to shun the commodity and resort to drastic cut in production, resulting in huge job cuts,” said NITMA President Sunil Jain.
The US, which is the largest importer of textile products, saw imports decline by 3.42 per cent in the first half of 2008 to $43.8 billion, from $45.3 billion in the same period last year. The decline is expected to widen in the second half due to the slowdown in the US economy, said a textile expert.
Another industry association, the Confederation of Indian Textile Industry (CITI), too said the government’s decision to raise the MSP for cotton would adversely impact the textile industry.
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“The government will be forced to procure huge quantities since the mills will not be able to purchase cotton at the increased prices, and the procured cotton will have to be disposed of at huge losses to the exchequer,” said CITI Chairman P D Patodia.
The increase of 47 per cent for the standard quality of long staple cotton from Rs 2,030 a quintal in 2007-08 to Rs 3,000 for the current year is expected to trigger a price spiral.
“It is unfortunate that the Indian government is not backing the textile industry at a time when our major competitors are gearing up to increase their share in world exports,” GTN Textiles Managing Director BK Patodia said.
“Increased rate of interest, skyrocketing prices of raw material and reduction of duty drawback rates at a time when import orders from the US are declining will spell doom for the Indian mills,” he added.