Synthetic textiles exporters in a spot over DEPB rate cut timing

Exporters of synthetic textiles are in a swivet over the 3-5 per cent reduction in 'duty entitlement passbook' (DEPB) rates announced by the Union finance minister, Jaswanth Singh, in his interim Budget.

According to the exporters, the rate cut, which was brought into effect from February 9, 2004, will lop more than Rs 30 crore off their order books both due to the reduction and its early timing.

Rakesh Mehra, chairman of Synthetic And Rayon Textiles Export Promotion Council, said, "There is no precedence to the rate cut being effected from February 9, 2004. Our order books are committed on pre-DEPB reductions up to March 31, 2004. These two months will cost us over Rs 30 crore, unless the cut is staggered and made effective from April 1, 2004. Normally, new rates come into force only after April 1, 2004, even when the Budget announcements were made on February 28."

The margins of these exporters are already under tremendous pressure due to the steady strengthening of the rupee and the rising competition in the global market.

Mehra also said the rate cut on various items of synthetic textiles was not justified as these products are already subject to a basic customs duty of only 20 per cent, unlike in the case of other products where peak rates of customs duty were reduced from 25 per cent to 20 per cent.

"For synthetic textiles the incidence of customs duty on inputs covers only dyes and chemicals, the use of which is marginal and form an insignificant portion of the products exported," Mehra said.

Exports of man-made textiles grew by 16 per cent to Rs 4, 560 crore in the April-October 2003 compared with Rs 3, 921 crore exports in the year-ago period.

Explaining the rationale behind seeking for effecting rate cut on April 1, 2003, Mehra said the production cycle in the textiles sector requires a time lag of at least 80 to 90 days from the date of order booking till actual shipment.

"The order negotiation and finalisation process takes seven days with another 30 days each required for converting the fibre into yarn and yarn into fabric, respectively. The time lag between the date of packing to the actual shipment takes another 15 days."

"Therefore, any revision in the DEPB rates prior to March 31, 2004, will cause a direct loss to exporters," Mehra added.