Cotton yarn exports of India in the April- July period of the current financial year witnessed decline by 9.79 percent due to slow pick up from the two large destination China and Bangladesh, which comprises around 50 percent of overall shipments from India.

China is the single largest market for Indian cotton yarn, accounting for 31 percent of country’s exports. Therefore, a substantial decline in exports to China has a major impact on overall export performance. Exports to China have declined by a staggering 48.58 percent during the April–July period in 2017.

The decline in exports has put massive investments in this sector at risk due to a 60-65 percent fall in capacity utilisation owing to the weak demand from domestic and global markets.

Domestic cotton yarn manufacturers have been reeling under tremendous pressure since the demonetisation of the high-value currency notes in November last year. This is because a major chunk of the industry falls under the unorganised sector and deals primarily in cash.

The industry has also suffered a hit due to GST levy of 5 percent that came to force after the goods and services tax (GST) was rolled out on July 1. Since cotton yarn manufacturers never paid any taxes in the past, compliance under the GST regime brought the entire business to a standstill, even before the July 1 deadline.

According to data compiled by the apex industry body Cotton Textiles Export Promotion Council (Texprocil), India’s cotton yarn exports stood at 283.18 kgs for the first four months of FY18. In terms of value, however, India’s total cotton yarn exports stood at $916 million.

Yarn exports, surprisingly, have rebounded a bit after falling by a third to 130 million kgs in the in the first two months of FY18 over 198.5 million kgs in the corresponding period last year. Trade sources held that recovery was temporary as Chinese traders’ were more inclined towards imports from Vietnam.

Vietnam is gaining market share at the cost of India mainly due to zero tariff on imports to China. Whereas, imports from India attract a tariff of 3.5 to 5 percent. Apart from that, Chinese textiles mills have invested immensely in textile and apparel sector in Vietnam. So, they are buying back yarn to China from their own manufacturing units, thereby, cutting down imports from other countries including India.

Interestingly, Vietnam has no base in cotton but it has nevertheless emerged as the largest supplier of cotton yarn to China, accounting for around 32 percent of imports into China.

Meanwhile, Chinese textile mills have built a large inventory of cotton and yarn over the past few years amid fears of a sharp increase in prices. Following the price hike, mills there started to use local cotton and yarn resulting in a sharp decline in their import not only from India but also from other surplus countries.

Siddhartha Rajagopal, Executive Director, Texprocil said that to regain India’s losing share in China and other important markets, it is suggested that a 2 percent incentive is provided to the sector under the Merchandise Exports from India Scheme (MEIS).