The Finance Ministry has done away with certain export promotion incentives on cotton, cotton yarn exports. The apparent surge in export value of these products in recent years has prompted the Government to remove these export promotion incentives for these products, official sources said.

Cotton yarn exports will also not be eligible for benefits of incremental export incentive scheme.

This has come as a strong blow for yarn exporters. Exports of these products will not be eligible for the benefits of the focus market scheme, the revenue department has said. The objective of the focus market scheme is to offset high freight cost and other externalities to select international markets with a view to enhancing the export competitiveness.

This has come as a jolt to the cotton yarn exporting fraternity, which termed the removal of these export incentives as “illogical”, saying it could stifle “job creation” within the country.

The export registrations for cotton yarn in April-November 2013 jumped 42 per cent to 937.09 million kg from 658.73 mkg in the corresponding period a year ago, mainly on the back of rising demand from China.

The China-intense policy has given India great returns in yarn exports, from almost nothing to accounting for 25 per cent of China’s imports.

The Directorate-General of Foreign Trade had given its green signal for this move in September and the revenue department has now implemented this decision, it is learnt.

With the withdrawal of focus market scheme benefits, exports of cotton yarn will not earn duty credit scrip of 3 per cent of free-on-board (f.o.b.) value of exports.

Under the incremental export incentive scheme, 2 per cent was given as incentive on the incremental exports achieved in a year. The Finance Ministry’s move clearly highlights that the Union Government is not willing to see cotton yarn as a manufactured item and that too when about Rs 1,00,000 crore has been invested in this segment, said Manikam Ramaswami, Chairman, Texprocil, an export promotion council for cotton textiles.

India’s cotton yarn exports stood at about $3.5-4 billion, with about $0.5 billion coming from the focus market countries. The removal of incentives will hurt cotton yarn export prospects to far-flung markets, which have been identified in the focus market scheme.

He flayed the Centre’s move to continue doling out focus market scheme incentives for an industry such as steel, while removing export incentives for cotton yarn. This is especially so when steel input item – iron ore – comes at a very low cost for the domestic steel industry and there is also a hefty export duty on the same raw material, thereby, improving local availability, he said.

Reacting to the Finance Ministry’s move on withdrawal of focus market incentives for cotton yarn, Ajay Sahai, Director General & Chief Executive Officer of Federation of Indian Export Organisations, said that the Government should give some time to industry to adjust to these changes.

However, the Finance Ministry’s notification is quiet on when these changes would come into effect.