Exports of cotton yarn to China saw the biggest fall in both volume and value terms as China, the largest importer of yarn reducing its purchases. As per the data with the Union Commerce Ministy, cotton yarn shipments to China plunged 31.9% to 105.9 million kgs (mkgs) between April and September. It dropped 36.7% year-on-year (y-o-y) in value terms to $285 million. Cotton yarn exports have advanced by a mere 1.1% y-o-y in value terms to around $1.5 billion during the time frame.

Incidentally, cotton yarn exports hit a record $4.5 billion in 2013-14 as spinning mills performed well by taking advantage of various sops including the 2% incremental export incentive, 2% interest subvention and 3% focus market incentive.

In 2014, export incentives provided to cotton yarn were withdrawn. Following this, yarn exports started declining and fell 26% to $3.3 billion in 2016-17. Sanjay Kumar Jain, chairman, Confederation of Indian Textile Industry (CITI) said that this policy decision has adversely affected cotton yarn exports to China, the largest importer.

China has shifted from India to Vietnam and Indonesia as they have duty free access while Indian yarn carries 3.5% import duty.From 2013-14 to 2016-17, there has been a decline in India's cotton yarn exports to China by 42% while exports from Vietnam and Indonesia have increased 83% and nearly 14% respectively in the same period, Jain stated.

Profit margin in the yarn industry is thin and profits are made with volumes. Withdrawal of the export incentives for cotton yarn has reduced their competitive edge by increasing their prices to the tune of 5-6 percent.

Many old textile mills have been shut down. Over the last five years, spinning EBITDA (earnings before interest, taxes, depreciation and amortisation) margins have decreased at an alarming rate of 21% per annum. The CITI chairman further said that the 3% IES (Interest Equalisation Scheme) benefit is essential to maintain 6-9 months of cotton inventory since it is a seasonal commodity available for four months and also to ensure consistency in quality of yarn supplied at a lower interest cost.

Indian interest rate ranges between 10% and 12.5% while interest rates of their competing nations ranges much lower at 4-6 percent. There is an urgent need to restore the MEIS (Merchandise Exports from India Scheme) and IES benefits for cotton yarn immediately.