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Apparel exporters are losing competitiveness by around 9 per cent in export markets after the implementation of GST and want a higher reimbursement of central and state levies to stall the continuing decline in exports.
“Post GST, there is an erosion of competitiveness by around 9 per cent for garment exports. Although we have a GST refund now, there was no vat (value added tax) on our materials earlier,” Apparel Export Promotion Council’s export promotion committee Chairman Anil Buchasia told reporters here on Tuesday.
“The export promotion benefits that we used to get were to the tune of 11.93 per cent in pre-GST regime while the same now stands at 3 per cent.” The demand for a higher reimbursement of central and state levies has come after a 39 per cent decline of apparel exports for October. For July-October, there has been a drastic fall of 5.94 per cent in overall exports of apparels from India, he said.
The decline was mainly on account of sharp reductions in the effective drawbacks and rebate on state levies, he added. Under drawback, exporters get the reimbursement of duties they have paid on the imported items used in the finished goods. Buchasia said the drawback mechanism, prior to Goods and Services Tax, reimbursed both the customs duties and domestic taxes like central excise and service tax. But after GST, the drawback rates are now only reimbursing the customs duties. For other duties, the argument is that those would be available as part of the credit chain.
“We have suggested an alternative mechanism for reimbursements of central and state levies. We have also urged the government that in addition to the GST credit, the various blocked and embedded taxes should be refunded at the earliest,” Buchasia said. According to him, the industry was “not in a position to bear further losses” and in the absence of policy incentives the sector would be “forced to shed jobs”.
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The overdependence on Indian cotton is becoming a cause of concern for local spinners as India itself is turning into a major cotton consumer with an increase in its export of apparel items, industry insiders said.
Currently, Bangladesh imports more than 60 percent of its required cotton from India, the single largest source of the raw material for the country.
“The overdependence on Indian cotton is a cause of concern for us. We should think of alternatives,” said A Matin Chowdhury, managing director of Malek Spinning Mills Ltd, one of the major local cotton importers in Bangladesh.
Bangladeshi spinners import cotton from India because of shorter lead-time, which is very necessary for the garment business in the present context of fierce global competition, Chowdhury said.
The prices of Indian cotton are almost the same as those of other countries, he said. The cotton supply from India is not always stable as New Delhi sometimes imposes ban on export when domestic consumption of the raw material goes up. “In such cases, Bangladeshi spinners have to face a dearth of cotton,” said Chowdhury. Backed by a massive stimulus package, India’s garment export grew 15 percent year-on-year to $17 billion last fiscal year, which indicates that the country will consume a lot of cotton in the near future.
Recently Gujarat Chief Minister Vijay Rupani has announced a new garment and apparel policy that aims to attract investments worth Rs 20,000 crore.
According to the plan, 16 new industrial estates would be set up to use cotton grown in the state, boosting the textile value chain from farm to fibre, fabric, fashion and foreign exports.
Gujarat is the largest cotton producer as well as the biggest supplier of the raw material to other states.
It is time to encourage local entrepreneurs to invest in garmenting, Mumbai-based media outlet Textile Excellence quoted Rupani as saying.
Chowdhury said dependency of 35 and 40 percent on a single market is a wise percentage. The US, Australia and African countries can be good sources for cotton for Bangladesh.
Since many international clothing brands and retailers have placed restriction on Uzbekistan’s cotton for alleged use of child labour, other central Asian countries can also be good sources, he said.
Bangladesh is the largest cotton importer worldwide. It overtook China after the latter stopped sourcing for having ample stocks of its own.
In 2016-17, some 7 million bales are expected to be imported. One bale equals 218 kg and the cotton year begins on August 1 and ends on July 31.
Bangladesh’s cotton import will creep up to 7.1 million bales in 2017-18, further consolidating its position as the world’s largest importer of the fibre, according to the recent reports of the United States Department of Agriculture.
Local growers can supply less than 3 percent of the annual demand, leading to the imports worth over $3 billion.
Abdul Hai Sarker, chairman of Purbani Group, another major cotton importer and spinner, said: “We should have the alternative sources for importing cotton as Bangladesh is the largest cotton consumer now worldwide.” The demand for the natural fibre is on the rise in Bangladesh as it is the only country that is still dependent on raw cotton for making yarns and fabrics.
Other countries have shifted to manmade fibres like filament, polyesters and viscose, causing global consumption of cotton to decline in recent years. Currently, the ratio of cotton and manmade fibre use is 28:72 worldwide, with a pronounced tilt towards artificial fibres, due to their lower price, improved functionality and ease of use, according to the International Textile Manufacturers Federation.In Bangladesh, more than 90 percent yarns and fabrics are made from cotton.
The Centre is considering an incentive package of over Rs. 16,000 crore to boost exports in view of “sluggish domestic demand and competition in export markets’’.
Commerce Minister Suresh Prabhu, in a letter to Finance Minister Arun Jaitley, has made a case for early decisions on key issues affecting exports — such as inadequate incentives and lack of credit — to formulate a meaningful mid-term review of the foreign trade policy (FTP). A number of critical export promotion measures, which would involve an additional outgo of over Rs. 16,000 crore, have been placed by Prabhu before Jaitley for consideration and early decision-making, a government official toldBusinessLine .
Proposed measures
The proposed measures include allowing the scrips earned under the popular Merchandise Exports from India Scheme (MEIS) to be used to pay Goods and Services Tax (GST), increasing the incentive rates and interest subsidy rates for labour-intensive sectors, reducing the GST rate on MEIS/SEIS scrips, and infusing more capital in the Export Credit Guarantee Corporation of India (ECGC).
“We have already delayed announcement of the mid-term review of the FTP as exporters were grappling with GST issues till recently.
“The Finance Minister has to now take a view on the incentives that could be extended to give exports a much-needed boost. A meaningful FTP review has to be announced without further delay,” the official said .
Cotton growers on the South Plains have been battling weather all season, so a clear and warm October would come as a blessing.
The forecast looks good, but fingers are still crossed.
More recently the issue was the two weeks starting in late September with cool temperatures and heavy cloud cover. Still, if October stays warm and sunny then cotton growers, on average, are expecting a good year. So long as a freeze doesn’t come early, highs in the 70s and 80s are exactly what farmers need.
“It has been been a roller coaster,” said Steve Verett, executive vice president of the Plains Cotton Growers. “But what I’m hearing from most folks is that we’re still in pretty good shape … people are saying it’s not going to be that big giant crop we may have thought it was going to be, but it’s still going to be a very good crop. That’s the best way I know to sum it up.”
Verett looked at some numbers, and said farmers in the 40-plus counties that make up the Plains Cotton Growers’ produced an average of 3.65 million bales of cotton a year in the past decade. The latest projection Verett saw for this year had the high plains producing 5.12 million bales. Verett said some growers are having a difficult year, no question, but production as a whole should be better than average.
Those cooler temperatures in weeks past delayed the maturity of cotton, said Wayne Keeling, an agronomist with Texas AgriLife Extension Service in Lubbock. Although unfortunate, he said, it’s not that unusual for this time of year — but for farmers who had to plant late or replant, this cool spell came at a time when they really needed sun.
“Generally you don’t get that many cloudy days together, but again, I think on the early crop that wasn’t too negative,” said Keeling. “By now you pretty much have all the bolls you’re going to make and you just want to mature those out, mature the fiber in those bolls. When you get cloudy days and cooler temperatures, you just slow that boll development. The fact that we’re getting so late in the season, it’s hard to make that up.”
With a warm October leading into harvest, Keeling said, for most their cotton should reach a good growth point.
Barry Evans, a cotton grower in Swisher County, said this has been his experience.
“Overall we got a good crop in the ground,” said Evans. “We’ll be OK. We just won’t have those top-end grades like we did last year. We missed those heat units when we typically get them, but we’re a long way from a wreck.”
Seth Byrd, a cotton specialist at Lubbock’s Texas AgriLife Extension Service, isn’t just blaming this recent weather. He said it’s been a challenge for farmers all year.
Byrd said weather was a little too cool around planting time at the beginning of May, and it was followed by a hot period with rough wind. July was good with rain and sunlight, but in August, Byrd said, that rain just kept coming. The rain came with little sunlight, which Byrd said was a challenge. Then in late September, cloud cover remained for several weeks.
“From the start of this season, from the time we planted, we’ve been battling just to stay on track,” said Byrd. “People planted late, people replanted, and we had late emergence all because of the weather … when you limit light temperature, you really limit the amount of growth and development you can do. You can’t build that fiber, you can’t build that fruit-load, you can’t fill bolls when you don’t have sunlight and heat.”
According to information from the Lubbock National Weather, only .58 inch of rain fell on Lubbock County in May, which is when farmers needed that original moisture during planting. Then in July Lubbock received 5.84 inches of rain, which is 3.93 inches above averages, and in August received 4.85 inches, which is 2.94 inches above average. This doesn’t take into account sunlight, and Byrd said the heat accumulation was below average in August.
Circumstances for each grower vary — this year maybe more so than others. A dry planting season followed by wind and heavy rain scattered throughout the South Plains forced some growers to replant at different times. Continuous cool temperatures in the northern Panhandle appear to have essentially ended the growing season early, while other growers further east in the northern Panhandle and in lower elevations have reportedly had good weather. Scattered weather events have impacted growers differently.
Call it luck in location.
Doug Hlavaty is a cotton farmer in the Lubbock area who said he lost nearly a third of his cotton crop, about 1,600 acres, due to hail and strong wind he was hit with in early July. Hlavaty then planted corn in that high-impacted area.
Despite that early setback, Hlavaty said, the cotton seems to be coming in alright.
“The cotton that we kept looks pretty good,” he said. “We still have some thin places that won’t be as good as we thought, but overall we should make more than we did last year. But we made an average crop last year while a lot of people made a really good crop.”
Byrd said the optimism right now is coming from the October forecast, which is showing highs in the 70s and 80s.
“Right now we’ve actually got probably the best conditions we’ve had in a while to mature some bolls,” said Byrd. “What I’m telling folks is to take advantage of these warm days. If you need to mature bolls, hold off. Let’s let the weather do a little work. If you need to spray a harvest aid, do it while we’ve got the good weather. We don’t know how long this is going to last, so we need to take advantage of it while it’s here.”
Hlavaty was on his way to spray harvest aid Friday afternoon when he spoke to A-J Media.
What would be bad for farmers is if a hard freeze came earlier than expected — the general rule of thumb in Lubbock is that the first freeze typically happens around Halloween.
“If you had a killing freeze or a hard freeze tomorrow night or next week, we’d be in trouble,” Byrd said last week. “We’d not like to see that. We’d like to see some days to get some bolls open and get some fiber to mature.”
Darren Hudson, professor of agriculture and applied economics at Texas Tech, said he expects an average to an above-average yield. Nationally, he said the cotton yield may come in higher than it has in a decade.
“It’s a normal year, which is to say it’s very inconsistent across the area,” said Huston. “That’s typical. We get so much variability in weather across the area — who had moisture when, that kind of thing. Some areas had more weed pressure than others, or bug pressure, things like that. It’s largely just moisture and wind, especially in the early season.”
Golden days are ahead for weaver of the town as their hands are going to be full with work because of orders for weaving dhotis and sarees from Tamil Nadu and Kerala for the Pongal and Onam festival. The weavers, after suffering from financial problems and going through the suicide trend, celebrated the recent Dasara happily because of increasing earnings.
Of the total 78,000 power looms situated in the two Telugu states, 34,000 are located in this popular town alone. The weavers of the town were appreciated by the Government of Tamil Nadu for having successfully executed a huge order. It is pertinent to note here that at least 52 lakh sarees, distributed among women for Batukamma festival, were woven by the weavers here.
The weavers are striving to regain the past glory of the town, which was rocked by a spate of suicide deaths of weavers in the past. For the forthcoming Pongal and Onam, Tamil Nadu and Kerala governments respectively are making arrangements to give huge orders to the weavers here. Orders from Andhra Pradesh are also in the pipeline. If all these orders materialise, the weaver will be busy for about a year.
Tamil Nadu requires 1.72 crore dhotis and 1.73 crore sarees. So agents of the state set their sights on the weavers of Siricilla.
Daily weavers of the town produce 1.40 lakh metres of sarees with each power loom producing at least 70 metres a day. The duration to complete the order will be three months. Earlier, the Government of Tamil Nadu gave work to the weavers here directly. But the picture has changed. Some agents are getting the work executed contacting the power loom owners here. The owners will allocate the work to weavers.
At least 2,000 power looms are busy weaving dhotis and sarees. The dhotis and sarees are being exported to Kerala market as the people there are fond of the textiles woven by the Siricilla weaver.
In Tamil Nadu, the government distributes sarees and dhotis among the people for the Pongal. There is a scope for the Siricilla weavers to get a work order to execute three lakh dhotis and sarees each.
In Sircilla, there is a three-tier setup—the owners of power looms, the job workers also known as ‘Asaamulu’ who have their own looms and the weavers down below. The power loom owners give orders to the people who have their own looms who in turn get the orders executed by the weavers.
A weaver gets Rs 1.80 per metre of polyester cloth produced. They get Rs 4.70 per metre of the saree produced. Each saree measures 5.5 metres. The weaver gets at least Rs 25 per saree woven. Going by the existing wages, each weaver will at least earn between Rs 20,000 and Rs 25,000 a month.
Whatever be the reason, a festive atmosphere prevails in the weaver town.General Secretary of power loom owners Mandala Satyam said that the weavers at last got their due recognition upon overcoming hard times. Then there was uncertainty among weavers about future. If the orders from Tamil Nadu, Kerala and AP are through, the weavers and power loom owners benefit financially. Support from the Government of Telangana is appreciated, he said.
The Telangana state agriculture department’s initial assessment shows that 1.13 lakh farmers were affected by the October rain. The continuing unseasonal rain in October has affected 98,000 hectares of sown land in Telangana in the last two weeks, reports Mint.
The Telangana state agriculture department’s initial assessment shows that 1.13 lakh farmers were affected by the October rain. Many places recorded rainfall that was overall 100 millimetres higher than the yearly average.
Kharif season saw farmers planting cotton crop on 49 percent of farmland, an increase of more than 50 percent from last year to 1.9 million hectares. The unforeseen damage is likely to add to the woes of the state government which had anticipated trouble from cotton farmers.
The exact damage to crops will be known only after the rain stops. Data is collected from different parts of the state on a daily basis. A report will be prepared on the basis of that data which will be sent to the state government. The state’s agricultural department data as on October 13 showed 98,000 hectares of crops were affected including73,000 hectares of cotton, 17,000 hectares of paddy, 1,600 hectares for maize, 4,800 hectares for red gram and 1,000 hectares for castor.
After hitting the lowest in nine months, cotton price recovered albeit marginally on reports of crop damage due to deficient rainfalls this monsoon season in major producing centres and sudden spurt in its demand from textiles mills.
The benchmark Shankar 6 variety of cotton reported an increase of nearly 3 per cent in the last two weeks to trade currently at Rs 10,967 a quintal in the physical market. In futures, however, cotton prices have declined by Rs 200-300 to trade currently at around Rs 11040 a quintal (~Rs 39,300 a candy of 356 kgs each).
Traders believe that the extended season rainfalls in October have brought a bounty for cotton crops especially late sown ones across the country. While the cotton output in India is estimated to remain higher this year, the initial crop damage may not be recovered. Still, markets are going to be fully dominated by supplies resulting into a subdued price trend this year.
“We expect cotton prices touch Rs 10294 a quintal (~Rs 17,500 per bale of 170 kgs each) during the peak arrivals season in November- December. Currently, lower than expected crop size in the country, reports of the Cotton Corporation of India (CCI) procurement, lower new season arrivals and improved export demand for Indian cotton is supporting prices as prices have improved from the low of Rs 10590 a quintal (~Rs 18,000 a bale) levels in August to currently trading at Rs 11058 a quintal (~Rs 18,800 a bale) levels,” said Ritesh Kumar Sahu, an Analyst with Angel Commodities Broking.
The Cotton Advisory Board (CAB) in its meeting held in August had forecast India’s cotton output to remain higher during 2017-18 than 34.5 million bales reported for 2016-17. Traders and cotton exporters estimate now the cotton crop size at 37.5-38 million bales this year on better use of seed and farm techniques to report least pink ballworm attacks on the standing crop.
MCX Cotton Oct futures surged to the higher of Rs 11529 a quintal (~Rs 19,600 a bale) from Rs 10812 (~Rs 18,380 a bale) but corrected steeply to Rs 11058 a quintal (~Rs 18,800 a bale) on expectation of good production during the new season mainly due to extended monsoon rains in October. The prices have surged so much due to unexpected rains in the key growing regions of Maharashtra and Telangana which slowed the arrivals of new season crops. Increase in demand by the millers has contributed to the bullish trend in both the spot and futures markets.
But futures have corrected in last three trading sessions due to expectation that the cotton crops in Maharashtra will benefit from the October rains which will enhance the production to late sown crops. In Maharashtra, monsoon rains in the cotton growing areas was deficient during 4 months of monsoon.
On the other hand, there is good carryover stocks from the last season. India imported about 1.85 million bales (170 kg per bale) during CY 2016-17 till June, up by 130 per cent compared to previous year imports, as per data released on Department of Commerce. However, exports have been down by 16 per cent in CY 2016-17 to 5.68 million bales compared to 6.77 million tonnes in previous year.
Aurobinda Gayan, Head – Commodities, Kotak Commodity, believes that the little mismatch of rain had caused crop damage in the western and southern Indian states. “In the last couple of days, the average arrivals have moved up to around 70,000 bales, a sharp recovery from the lowest level of around 40,000 bales in the first week of October. Going forward, however, we see the trend is likely to continue with supply going to increase further. Thus, markets are likely to remain bearish,” said Gayan.
Arun Sakseria, a cotton trader and exporter, sees no room for a bullish sentiment in cotton prices this year following a bumper output estimate.
Meanwhile, higher input prices (primarily cotton) this year vis-a-vis last year added to profitability pressures for exporters during H1 FY2018, given the cotton-dominance of textile exports from India. While cotton prices have corrected to an extent from mid-September 2017 onwards which is expected to provide respite during H2 FY2018, recent revision in duty drawback rates is likely to exert some pressure on margins, an Icra study said.
India’s annual rate of inflation, based on monthly wholesale price index (WPI), declined to 2.60 per cent for the month of September 2017 over same month of last year. The index for ‘Manufacturing of Textiles’ group rose by 0.6 per cent to 113.4, while the index for ‘Manufacturing of Wearing Apparel’ group rose by 0.1 per cent to 136.6 in September.
The official WPI for all commodities (Base: 2011-12 = 100) for the month of September 2017 declined by 0.4 per cent to 114.3 from 114.8 for the previous month, according to the provisional data released by the Office of the Economic Adviser, ministry of commerce and industry.
The index for manufactured products (weight 64.23 per cent) for September 2017 rose by 0.4 per cent to 113.4 from 112.9 for the previous month. The index for textiles sub-group rose by 0.6 per cent to 113.4 from 112.7 for the previous month due to higher price of texturised and twisted yarn (2 per cent each) and weaving & finishing of textiles, manufacture of cordage, rope, twine & netting and cotton yarn (1 per cent each). However, the price of viscose yarn (3 per cent) and manufacture of knitted and crocheted fabrics (2 per cent) declined.
The index for ‘Manufacture of Wearing Apparel’ sub-group rose by 0.1 per cent to 136.6 in September 2017 from 136.5 for the previous month due to higher price of trouser/pants made of cotton and/or mad-made fibre (2 per cent). However, the price of manufacture of knitted and crocheted apparel declined by 1 per cent.
The index for primary articles (weight 22.62 per cent) declined by 3 per cent to 130.8 from 134.9 for the previous month. On the other hand, the index for fuel and power (weight 13.15 per cent) rose by 1.7 per cent to 90.7 from 89.2 for the previous month due to higher price of LPG, naphtha, ATF, petrol, kerosene, HSD, furnace oil, and bitumen. However, the price of petroleum coke declined.
State agriculture minister Pandurang Fundkarhas called for a ban on the sale of unapproved genetically modified (GM) cotton seedswith herbicide-tolerant traits. There is growing evidence of the use of such seeds in the state even though the technology is yet to be approved in the country. Currently, only GM cotton seeds with resistance to the American and pink bollworm are approved by the Centre.
A team from the Centre’s Genetic Engineering Appraisal Committee (GEAC) is expected in the city in November to take stock of the issue.
Tests by the Central Institute for Cotton Research (CIRC) showed that herbicide-tolerant GM cotton seeds termed BG 3 are sold and cultivated in the state, said Fundkar. “These seeds are being illegally sold by several companies using different brand names,” said the minister. He called for a meeting of the state’s biotechnology coordination committee chaired by the chief secretary to enforce a ban on such seed sales.
The BG 3 seeds are sold in Gujarat, Andhra Pradesh, Telangana and some other states too, said Fundkar. The government also held a meeting with seed companies to know how the herbicide-tolerant BG 3 had reached the market. “Seed companies performing trials on this technology are supposed to take adequate care that the seeds do not leak out from the research farm,” said state agriculture secretary Bijay Kumar.
In February, the CIRC tested nine seed samples, and six tested positive for herbicide-tolerant traits. “The GEAC had been apprised of the results,” said CIRC acting director V N Waghmare.
State government officials said they needed details on the evidence and the tests to take punitive action but were still awaiting these. “Once we receive details we will be able to lodge cases under the Seed Act 2004 for the sale and distribution of unauthorized seeds,” said Kumar.
