Make sure raw materials are available at competitive costs around the globe.
The local prices of raw materials in India are substantially higher than those outside. While rivals like Vietnam and Bangladesh have unrestricted access to these raw resources, India has placed a QCO on MMF fibre and yarn, which acts as a non-tariff barrier to the importation of these raw materials and impedes their free movement. It has affected domestic prices and caused a scarcity of some speciality fibre and yarn variations.
The downstream textile goods’ cost competitiveness is being negatively impacted by the costly raw material. Since the downstream segment has the highest employment elasticity in the entire value chain, it is endangering the livelihoods of the millions of people employed in the sector.
The government must guarantee the plentiful supply of all raw materials at prices that are competitive with those of other countries if India is to meet its ambitious goal of having a textile market worth US$ 350 billion by 2030, including US$ 100 billion in exports. In support of this, the government can think about lowering the basic customs tax (BCD) on all MMF fibres, filaments, and necessary chemicals like PTA and MEG that are vital to the manufacturing of these raw materials, as well as liberalising import regulations.
Elimination of import taxes on all types of cotton fibre
Specialised cotton types that are unavailable domestically, such as contamination-free, organic, sustainable, etc., are imported by the Indian cotton industry. To satisfy the quality standards of overseas customers, they are being imported under designated companies.
Small and marginal farmers in India cultivate the majority of cotton, which they then sell during the busiest time of year. The sector must rely on merchants to provide cotton during the off-season because of working capital restrictions, which also limit the amount of inventory that can be kept on hand. Domestic cotton is more expensive than imported cotton because these dealers frequently offer cotton during the off-season based on import price parity. Throughout the year, the cost competitiveness of the downstream value-added cotton-based textile goods was impacted by the fact that Indian cotton fibre prices were typically 15-20% higher than global cotton prices.
The import tax, which was put in place to protect farmers’ interests, is really harming the domestic cotton textile value chain instead of accomplishing its goal.
The government has already kindly decided to exclude cotton with a staple length longer than 32.0 mm from import duties. However, it only makes up around 37% of India’s total cotton imports, and 63% of the imported cotton is still subject to import duties.
The government may withdraw BCD from all cotton types in order to guarantee cotton availability at rates that are comparable with those of other countries.
Use Direct Benefit Transfer (DBT) to conduct cotton purchase activities at the Minimum Support Price (MSP).
Currently, the government sets a Minimum Support Price (MSP) for cotton each year. The Cotton Corporation of India (CCI) steps in to buy cotton directly from farmers at the MSP price if the current market prices drop below the MSP. Such procurement is carried out at different MSP procurement centers and once procured, CCI stores the cotton in warehouses and sells the same through open market or auctions.
However, it is suggested that the government create a DBT program in which a farmer sells his cotton on the open market at the going rates. If the selling prices are less than MSP, the difference between the two prices can be deposited into the farmer’s bank account via DBT.
Cotton producers will benefit from increased liquidity under such a program as they will be able to sell their cotton at current market rates without having to wait for government procurement to begin. Additionally, it will lessen CCI’s load and carrying costs, which will benefit all parties involved.
Furthermore, it is requested that the government, through the Cotton Corporation of India (CCI), guarantee sufficient supply of cotton at international prices (when domestic prices are higher than international prices). The government may also reimburse CCI for any losses incurred in this regard by providing a subsidy, similar to what it does for other commodities.
Fund Scheme for Cotton Price Stabilisation
Because textile mills can now only obtain working capital from banks for a period of three months, they often buy three months’ worth of cotton stock at the beginning of the season, when cotton prices are typically lower. The mills get their cotton for the remaining months from traders and CCI, whose cotton prices fluctuate according on market circumstances, making it challenging for the mills to efficiently organise their production schedule. The government may think about creating a Cotton Price Stabilisation Fund Scheme that includes the following in order to help the sector overcome this problem of price volatility:
Cotton is an agricultural commodity, hence there is a 5% interest subsidy or loan at the NABARD interest rate; Extend the three-month credit limit term to eight months; and Cut the cotton working capital margin money from 25% to 10%.
The aforementioned plan will protect the industry from price fluctuations during the off-season and assist it in obtaining its raw materials at competitive prices at the start of the season.