September 26, 2013 / 2:10 PM / 6 years ago

India withdraws export incentives for cotton, yarn

MUMBAI (Reuters) - India has withdrawn incentives for exports of cotton and yarn, a value-added product used by textile mills, an official order said, a move that could cut exporters’ margins in the world’s second-biggest exporter of the fibre.

A worker fills a spanning machine with cotton at a cotton processing unit at Kadi in Gujarat March 21, 2013. REUTERS/Amit Dave/Files

The Directorate General of Foreign Trade (DGFT), a unit of the trade ministry, did not give any reason for withdrawing the incentives. To see the official order, click here

Together the benefit of the government’s Focus Market Scheme and Incremental Export Incentivisation Scheme on cotton yarn comes to around 4 percent of the free-on-board value of exports, according to Industry body the Confederation of Indian Textile Industry (CITI).

Currently there is no cap on cotton and cotton yarn exports but exporters need to register shipments with the DGFT.

CITI urged the government to restore export benefits.

“India is the most competitive yarn producer in the world at present and, therefore, there are increasing export opportunities opening up for our cotton yarn,” Prem Malik, chairman of the CITI, said in a statement.

Despite the withdrawal of incentives for overseas sales, buoyant demand for cotton yarn would offset any fall in export margins, said M.B Lal, managing director of Shail Exports, a Mumbai-based exporter.

Trade commitments for cotton yarn exports rose more than 26 percent in August from a year earlier, data from the DGFT showed, mainly due to rising demand from China, India’s biggest client.

However, exports of raw cotton are seen down at 10 million bales in 2012/13 from 12.9 million bales a year ago.

India, also the world’s second-largest cotton grower, is forecast to produce a record 35.3 million bales, against 34 million bales a year ago.

Reporting by Meenakshi Sharma; editing by Mayank Bhardwaj and Keiron Henderson

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