China’s FTA with Pakistan dents cotton yarn exports

India’s exports of cotton yarn have declined 38.8% during the first six months of the current fiscal ended September 2019, with June being the worst affected month in the last five years. Exports between April and September this year stood at 422 million kgs valued at $1.27 billion compared to 654 million kgs valued at $2.08 billion in the same period last year.

Quantity-wise, exports of Cotton yarn have declined every month from 90 million kgs in April 2019 to 67 million kgs in September 2019, which is a very serious situation for the spinning sector. In fact, the export quantity of 59 million kgs in June 2019 was the lowest monthly export in the last five years.

Exports of cotton yarn have registered negative growth in all the months since April 2019. “The continuous fall in exports of cotton yarn is a matter of deep concern for the country,” K V Srinivasan, Chairman of The Cotton Textiles Export Promotion Council (TEXPROCIL) told DH.

China’s free trade agreement (FTA) with Pakistan from April this year is seen one of the major factors for the drop in India’s cotton yarn exports to China, which is among India’s top markets. Cotton yarn is the only product which has not been granted export benefits such as Merchandise Exports from India Scheme (MEIS) and 3% interest equalisation scheme, he said. In addition, exporters of cotton yarn are at a serious disadvantage vis-a-vis competing countries due to differential import duties in leading export markets. There is an import duty ranging from 3.5% to 5% on cotton yarns imported from India into major markets like China, EU, Turkey and South Korea as against imports from competing countries like Bangladesh, Cambodia, Pakistan, Indonesia and Vietnam which enjoys benefits of zero duty in these markets.

Srinivasan said, “Cotton yarn is a value-added product with substantial value addition taking place within the country and its exports need to be encouraged”. He also pointed out that only about 27% of the total production of cotton yarn are being exported and there will not be any shortage of cotton yarn in the country both for export and domestic production if exports increase.

Further, exports of value-added products such as fabrics and Made-ups have grown only by a marginal 1.87% in the current fiscal year. This combined with a lukewarm domestic demand has further aggravated the situation for the cotton yarn spinning sector, according to the Chairman, TEXPROCIL. Many of the spinning mills are reportedly on the verge of closure which may cause unemployment. TEXPROCIL is in the process of gathering data from mills that are in distress due to the economic slowdown and decline in exports.

As a result of a decline in exports this year, the supply of cotton yarn has increased in the domestic market and in turn, led to a drop in prices.