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Effort to get mills to foot bill for ensuring 50% profit for farmers over production cost
The agriculture ministry is weighing an option to mandate the textile industry to buy cotton and jute from farmers at least at the minimum support prices (MSPs) fixed by the Centre. The move is part of the efforts to make the government’s promise of ensuring a 50% profit to farmers over their cost of production a reality, without letting the Centre’s procurement expenses spiral out of control. Inter-ministerial consultations are currently being held on procurement-based price support schemes for agricultural crops.
The ministry’s proposal — fraught as it is with serious implementation challenges — could spell trouble for the labour-intensive textile and garment industry by inflating the cost of cotton, a key input. The sale of raw materials to industry at state-fixed prices is currently adopted in cane where sugar mills are bleeding while footing the bill for the profligacy of states and the Centre.
MSP for cotton will increase by at least 28% for 2018-19 from the current level if the government’s promise to farmers is to be met. A back-of-the-envelope calculation suggests cotton accounts for roughly 60% of yarn costs, and yarn makes up for 50% of fabric costs. Fabric, in turn, makes up for 50% of garment costs. So higher cotton prices will push up costs in the entire value chain and jeopardise its competitiveness.
“For cotton and jute, there are two options. Either the Cotton Corporation of India (CCI) and the Jute Corporation have to buy the two crops at MSP everywhere and later sell it in the open market, or the mills are asked to buy at MSP and in return get some incentives,” said a government official. The idea is being mooted at a time when garment production has dropped for 11 months in a row and exports have contracted for a seventh straight month through April, with most units reeling under elevated costs. Garment production dropped 11% in 2017-18 and exports contracted almost 4%, even though the country’s overall merchandise exports rose 9.8%.
Given its traditional focus on a balance between the interests of both producers and industrial consumers, and exports, the textile ministry will most likely oppose the farm ministry’s idea. “We are unaware of any such proposal on cotton procurement that will potentially render the Cotton Corporation of India irrelevant,” said a senior textile ministry official.
The CCI had bought a record 8.9 million bales — or nearly a third of the cotton production — in 2008-09, and procurement levels have been below average in the past three to four years. However, since cotton is almost entirely consumed by industrial users, the burden of procurement will be too high for them if market prices trail the inflated MSPs by a substantial margin. In such a case, the value chains of the textile industry that work on thin margins will be substantially hit.
Noted textiles sector expert DK Nair said: “The proposal is impractical and will be very difficult to implement, considering the existence of thousands of units. More importantly, it will have a substantial damaging impact on the entire textile value chain.” Unsurprisingly, such a system has choked the growth of the sugar sector that experiences recurrence of massive cane arrears when sugar prices crash.
Mills haven’t quite expanded capacity in almost a decade and are now saddled with cane arrears of over Rs 22,000 crore. However, while the sugar sector is highly organised with only 720-odd factories operating in select states, cotton is grown by most states and thousands of textile units, mostly the micro ones, are spread across the country. Ensuring compliance of any such proposal, therefore, will be an uphill task.
Currently, the CCI and even Nafed procure cotton from the market at the MSP if prices crash below the benchmark levels, to prevent distress sales by farmers. Subsequently, they sell the stocks to mills or other bulk consumers. Any losses in this operation are reimbursed by the government.
In 2017-18, the MSP of medium-staple cotton was Rs 4,020 per quintal, which is 22.71% more than its estimated cost of production (A2+FL) of Rs 3,276 per quintal. According to an Icrier study, the A2+FL cost could rise to Rs 3,439 a quintal in 2018-19, which means the government will have to fix the MSP at Rs 5,160 per quintal for the year to meet the promise of providing 50% profit over cost.
In 2017-18 season (October-September), the CCI has so far purchased 3,88,758 bales of cotton whereas it didn’t procure any last year as prices were generally higher than MSPs. Some incentives to textile mills, along the lines of a similar subsidy of Rs 5.50 per quintal the government offers on cane supplies, is considered for cotton and jute so that World Trade Organisation rules are not violated, the sources said.
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The Federation of Indian Chambers of Commerce and Industry (FICCI) on Tuesday hosted an industrial meet ahead of ‘Technotex 2018’ which will be the seventh edition of international exhibition and conference on technical textiles to be held from June 28 to 29 at Bombay exhibition centre.
The keynote speakers at the meet spoke about the ‘Challenges and Opportunities in Indian Technical Textile Industry’. The meet, which saw a gathering of around 80 participants associated with the textile industry from and around Punjab, have a riveting discussion about the current state of the textile industry and what steps need to be taken to ensure continuous growth in the sector.
Focusing on creating awareness about the technical textile sector, Dr Kavita Gupta, Textile Commissioner, Ministry of Textile, Government of India, said technical textile was a sunrise sector in India.
“Unfortunately, growth in technical textiles is not as encouraging as expected. The government is providing benefits for textile sector but most industries are unaware of it,” said Gupta.
She said the garment industry had more subsidy than other industries that include a 25 per cent of subsidy,12 per cent EPF, income tax benefit, import duty waiver and some more benefits enjoyed by the garment industry.
Mukul Verma, secretary, sports goods manufactures and exporters association demanded park for sports good industry in Jalandhar. He said a well-connected place for sports goods industry with proper roads, electricity and sewerage should be there to hold joint meetings for research and development project.
Talking about present industry, he stated that the government should relax norms for the industry so that they can expand their areas. The traders highlighted the need for government to pay attention to import duty as well. Indian industry had to pay 10 per cent import duty to send items outside the country whereas Pakistan and Bangladesh had zero import duty.
India’s apparel exports, particularly from Punjab, Haryana and Uttar Pradesh, have seen a steep decline due to high input cost, delay in Goods and Services Tax refund and stiff competition from Bangladesh, Vietnam, Pakistan and China.
The three states have been the worst sufferers in the declining apparel exports, which continues to fall for the seventh month in a row. The country has experienced about 23 per cent decline in apparel exports in April 2018 compared to April last year.
The decline in exports is giving sleepless nights to around 200 exporters in Punjab and Haryana, said Harish Dua, managing director of Ludhiana-based KG Exports. He said the input cost in Punjab, Haryana and Uttar Pradesh was much higher compared to the Tiruppur cluster in Tamil Nadu.
Concerned over the steep fall in exports, apparel exporters met Finance Minister Piyush Goyal and Textiles Minister Smriti Irani recently. “The Finance Minister has assured exporters that the government will expedite the refund of the GST and remission on state levies (RoSL) in a time-bound manner and has directed the bureaucrats to do the needful,” a member of the Apparel Export Promotion Council (AEPC) said. Declining business is a major concern for exporters. “The government should swing into action and must do something to boost the exports, otherwise many units would be forced to close down operations,” said Dua.
Total readymade garment exports in April this year were around $1.34 billion while it was $1.74 billion in the same month last year. In rupee terms, exports in April 2018 were around Rs 8,860 crore, a decline of 21.4 per cent compared to the corresponding period last year.
“Previously (2016-17), the industry had witnessed a strong growth, but now exports are in a negative territory since October last year. It is because of the continued backlog in the GST and RoSL, which is affecting the business sentiments,” AEPC chairman HKL Magu said. According to garment sector experts, due to the increasing un-competitiveness of Indian apparel exporters in the international market, many exporters have increased their exposure in the domestic market. “This will not be good in the long run for India, which used to be a dominant player in the international apparel export market,” Dua said.
India’s readymade garments export to the international market in the previous financial year was around $16.71 billion, compared to $17.38 billion in 2016-17.
Union minister Smriti Irani today said the government would prioritise the development of the north-eastern region in its efforts to build a “New India”.
Union minister Smriti Irani today said the government would prioritise the development of the north-eastern region in its efforts to build a “New India”. “The sun for the development of a New India will rise in the north-east,” the Union textile minister, who was here to attend the convocation ceremony of the National Institute of Fashion Technology (NIFT), said at a press meet.
Prime Minister Narendra Modi, in his speeches at home and abroad, had said a “New India”, free from corruption and terrorism, would emerge by 2022, when the country would celebrate 75 years of independence from British rule.
A forum was set up under the NITI Aayog to work out strategies for the growth of the north-east, she said, adding that it would focus on developing infrastructure in the region.
Irani alleged that the previous Congress-led UPA government had neglected the weavers, “most of whom hail from the north-eastern region”.
“The current government pays 75 per cent of the education fees for the weavers’ children. Every state now has textile manufacturing units, which were set up in two years,” she said.
Stating that six lakh people had received skill-based training in the last four years, Irani said the textile sector was now the second-largest job provider in the country.
The Centre had doled out Rs 4 lakh crore under the Mudra Yojana, a scheme to provide loans to micro enterprises and entrepreneurs, benefitting 70 per cent women workers, the minister said.
“Schemes of the Union government such as the Jan Dhan Yojana, the Jan Suraksha Bima Yojana, the Swachh Bharat Mission have contributed greatly towards the development of a New India,” she added.
External affairs minister Sushma Swaraj said on Monday that India will only abide by sanctions by the United Nations. A defiant New Delhi also plans to announce its purchase of the Triumf S-400 missile defence system from Russia later this year.
Sanctions and stents will be among the sources of contention at the coming India-US 2 + 2 strategic and economic dialogue in Washington in the first week of July.
At the top of the list will be the US’s sweeping Countering America’s Adversaries Through Sanctions Act (CAATSA) that imposes sanctions on countries which trade with Russia and Iran.
External affairs minister Sushma Swaraj said on Monday that India will only abide by sanctions by the United Nations. A defiant New Delhi also plans to announce its purchase of the Triumf S-400 missile defence system from Russia later this year.
CAATSA gives exemptions for non-significant purchases and if Russia’s “behaviour” is shown to change. However, US defence industry sources say sanctions could kick in for purchases as low as $15 million.
The US is expected to point a finger at India’s applied tariffs, which are nearly four times those of the US, the arbitrariness of India’s price controls on medical device manufacturers, its new data localisation policies and the WTO incompatibility of Indian export subsidies.
India will also worry about the US review of its textile export privileges under the general system of preferences (GSP) programme. The US will note India’s own actions against medical devices and other exports are the reason for the review.
Both Indian and US officials admitted that with the sanctions issue coming out during an election year, a solution will be more difficult to reach.
However, New Delhi believes the US has gone too far with CAATSA. It is being driven by the US Congress and even President Donald Trump has expressed disapproval. A number of US treaty allies such as Indonesia, who use Russian weapons, will be affected as will many US firms that buy parts and services from Russia.
“US industry has woken up to the problems with this law,” said a US executive.
There is an expectation India’s investments in the Iranian port of Chabahar will be exempted – as happened last time the US imposed sanctions on Iran. Oil imports, however, are expected to decline but not fall to zero.
India may find it harder to ensure trade issues do not complicate strategic relations given the Trump administration’s mercantilist attitude.
Washington is peeved India has complained about US plans to deny the spouses of H-1B visa holders the automatic right to work given that no other country grants such privileges, including India.
There is a sense in Washington that Prime Minister Narendra Modi missed an opportunity when he told Trump that India had reduced its tariffs on US-made Harley-Davidson motorcycles but cited a still absurdly high 50% tariff. It was an opportunity to get India off Trump’s trade hit list.
Instead Trump publicly denounced Modi’s offer and India remains in the president’s crosshairs.
The positive side is that there are a large number of leading lights in the Trump administration, including Pentagon chief Jim Matthis, secretary of state Mike Pompeo and National Security Advisor John Bolton, who believe strongly in the US-India relationship and who will seek a managed solution to the fallout from CAATSA.
The cotton trading remained modest amid firm spot rate and around 1,500 bales changed hands. The Karachi Cotton Association (KCA) spot rate remained intact at Rs 7,500 per maund, the traders said.
They said the buyers bought all qualities of lint offered by the ginners during the trading session besides spinners and mills purchased quality cotton on slightly higher prices during the session while leading ginners sensing future demand of quality lint offered fewer stocks on higher prices to the buyers.
Ghulam Rabbani, a senior trader said the buyers were accepting a bit higher prices as the leading millers and spinners bought around 600 bales at Rs around 7,525 per maund during the session.
He said the leading buyers would remain eager for quality lint on slightly higher prices on the back of growing demand of garments and yarn.
He said there leading end users would likely to go for further import of quality cotton in near future for meeting foreign and domestic end-products demands.
A senior broker said the private sector commercial exporters of Sindh and Punjab made deals for quality cotton at around Rs 7,550 per maund while ginners of Sindh offered raw lint to the buyers around Rs 5,975 per maund, depending on trash level.
Around 200 bales of upper Sindh changed hands at Rs 7,050 per maund, 200 bales of Mirpurkhas at Rs 6,975 per maund, 100 bales of Yazman at Rs 7,225 per maund and 100 bales of Multan changed hands at Rs 7,200 per maund.
He said market remained steadier tones as the buyers were looking for better lots for Rs 7,500 to 7,575 per maund. New York Cotton July 2018 Future closed at 86.18 cents per pound and October 2018 Future closed at 86.36 cents per pound.
PUNE: Even as the country debates the use of genetic modification technology, some cotton farmers in Maharashtra have decided to defy government directives against the use of illegally propagated herbicide-resistant cotton varieties and other GM crops like brinjal and mustard. They have called their protest an ‘Agitation for Freedom to use Technology’. India has not allowed cultivation of Herbicide Tolerant (HT) BT cotton variety, which helps farmers save the cost on employing manual labour for removing weeds. HTBT cotton plant is resistant to herbicide sprays, which then kill only the weeds.
The Central Institute of Cotton Research (CICR), Nagpur had confirmed presence of HT cotton seeds in Maharashtra in the previous year, following which the state government had raided the godowns of a prominent seed companyNSE 3.80 % and registered a police complaint
To prevent the use of HT varieties in the 2018 kharif season, the agriculture department of Maharashtra has appealed to farmers to stay away from these seeds.
However, Shetkari Sangathana, a Maharashtrabased farmers’ organisation, recently organised aTechnology Freedom Conference at Akola in Marathwada where it passed a resolution to support farmers who decide to plant the illegal HT varieties of BT cotton. Ajit Narade, a leader of the Shetkari Sangathana, said, “Despite its trials being over, the government has not given permission for use of HT cotton seeds. The rapid spread of these seeds without any promotion shows that farmers are desperate to use this technology. That is why we have decided to support farmers who want to cultivate HT seeds. We will soon be setting up teams to give protection to farmers.” However, the agriculture department has cautioned farmers against using HT seeds as it is against the provisions of the Environment Protection Act, 1986.
New Delhi: To formulate the strategies for enhancing export in each sector which comes under the Ministry of Textiles and to resolve the problems and challenges faced by the Handicrafts Sector, Piyush Goyal, Union Minister of Finance and Smriti Zubin Irani, Union Minister of Textiles called a meeting with the heads of Export Promotion Councils on Sunday at New Delhi. O P Prahladka, Chairman- EPCH gave an overview of the sector and also placed before the Ministers strategies being adopted by the EPCH for export growth.
Prahladka informed that both the Union Ministers gave a patient hearing to the issues raised by him and assured all possible cooperation towards resolution of all the issues, which are hampering the exports of handicrafts from the Country. The major suggestions placed by the Chairman included:
• Enhancement of list of essential embellishment, trimmings, tools and consumables to be imported duty free and Exemption from payment of IGST on import of such items.
• Inclusion of ‘Merchant Exporters’ in the list of exporters eligible for benefit of ‘interest equalization scheme’ (previously known as “interest subvention scheme”).
• Issuance of eBRC in case of Exports of Handicrafts to Iran.
• If Issuance of eBRC is not done by the bank within stipulated time, banks to pay penalty to the exporters.
• Scheme of ‘ Rebate of State Levies’ (ROSL) on Exports of Handicrafts
• Engagement of Foreign Designers in the handicrafts sector to be made easy, cap to be reduced.
• Enhance Allocation of funds under Market Access Initiative and relaxation in Operational Guidelines for Funding Under the MAI Scheme to include Markets of USA, Canada, EU, Japan, and other developed markets for extending invitation to buyers to RBSM’s organized in India.
Move follows US complaint that New Delhi is no longer entitled to give exporters direct sops
The World Trade Organisation’s Dispute Settlement Body (DSB) has agreed to establish a panel to rule on a US complaint on certain programmes in India which Washington claims are prohibited export subsidies.
India was not given an opportunity to object to the first request for a dispute panel by the US, as is the usual practice, because the dispute involves prohibited subsidies.
“The panel was established under special provisions of the WTO’s Agreement on Subsidies and Countervailing Measures allowing panels to be established on first request for disputes involving alleged prohibited export subsidies,” according to a note from the WTO.
Popular schemes
The programmes targeted by the US include most popular incentive schemes such as the Merchandise Exports from India Scheme, Export-Oriented Units Scheme and sector-specific schemes, including Electronics Hardware Technology Parks Scheme, Special Economic Zones, Export Promotion Capital Goods Scheme and Duty-Free Imports for Exporters Programme.
The US, in its representation, argued that the programmes provided financial benefits to Indian exporters, which allowed them to sell their goods more cheaply to the detriment of American workers and manufacturers.
It alleged that while the exemption given to India from the ban on export subsidies had expired (as the country had surpassed the $1000 threshold for per capital gross national product), it was yet to withdraw its schemes.
New Delhi, however, is not convinced that the time it is entitled to for a phase-out of the schemes has lapsed and wants more discussion on the issue.
The Union Government has assured the textile and clothing industry that it will identify Central and State embedded taxes and work out a reimbursement scheme soon. HKL Magu, chairman of Apparel Export Promotion Council, has said in a press release that representatives from apparel, made up, and textile segments met the Union Finance and Textile Ministers and officials of the two ministries on Sunday.
In the two-hour meeting, the industry explained the issues of concern, pending GST refunds and slow disbursement of rebate of State levies (ROSL). The embedded and inverted taxes were not considered for refund and there was a delay in receiving the GST refunds, they said. Over 90 % of the textile and clothing industry was in the MSME sector and these delays had affected the financial capability of the units. The exporters were unable to book orders during the peak season.
The industry had seen reduction in drawback and ROSL by over 5 % of FOB since the pre-GST period. Further, Indian textile and clothing exporters did not have preferential access in countries markets such as the European Union which countries such as Bangladesh and Vietnam had. These had an impact on the exports.
Mr. Magu said the Finance Minister had instructed the officials to immediately identify the Central and State embedded taxes and work out a reimbursement mechanism. The Ministry would also expedite refund of GST and ROSL in a time-bound manner, the release said. Though annual apparel exports are at 17 billion $ now, the industry is confident of 20 % growth this financial year if there a level-playing field.
