Anxiety is running high in the Indian textile industry, thanks to China’s new cotton policy. Presently, the price difference between Indian and Chinese cotton is quite high, with the Indian variety selling at a big discount. In fact, price of Indian cotton in China is lower than the Chinese varieties even after duties and taxes are paid. In an exclusive interaction with The Dollar Business, Manikam Ramaswami, Chairman, The Cotton Textiles Export Promotion Council (Texprocil), explains these concerns and talks about challenges the industry is facing.

Jayashankar Menon | @TheDollarBiz

TDB: A Texprocil study reveals that India’s cotton yarn export, despite seasonal fluctuations, is meeting its targets. Are you happy with the results?

Manikam Ramaswami (MR): Seasonal fluctuations in demand should be construed as ‘no activity’ in the market. Even though export performance is almost on track month-on-month, there is a lot of scope to increase exports in the current year, provided Indian exporters do not undercut each other and expose themselves to price conscious buyers.

TDB: What is the main reason for Indian exporters winning repeat orders from foreign markets?

MR: The Indian spinning industry has got its own inherent advantages such as running spinning machines at high speeds as compared to any of our competitors. We also have advantages when it comes to raw materials and skilled labour, which allows us to produce high quality yarn at a price substantially lower than other spinners around the world.

TDB: There is a perceptible angst in the industry due to recent developments in China’s cotton policy as it is the biggest importer of cotton and cotton yarn from India. What is your take on this?

MR: Even though China is the largest producer of cotton and cotton yarn, it is also the largest importer of cotton and cotton yarn in the world, mainly because the weaving and knitting industry in China requires a lot of yarn. Installed spinning capacity in China actually consumes much more cotton than the total output of the country. Therefore, China will continue to be a net importer of cotton and cotton yarn. Every country needs to protect the interest of its farmers and China is no exception to this worldwide concept. However, it’s the supply and demand situation that will ultimately determine prices.

TDB: Price difference between Indian and Chinese cotton is high, with Indian variety selling at a discount. Why should then our exporters be anxious?

MR: It is reported that Chinese exports of finished textile and apparel products is slowing down due to various reasons. Although there is enough headroom to maintain our price levels of cotton yarn, owing to below normal export orders for finished products there is increasing pressure on raw material prices. In recent months, there has been a mismatch in asking price and offer price to the extent of 10 to 15 US cents/kilogram of yarn. Due to this mismatch in prices there is a slowdown in orders and is a cause for anxiety among exporters.

TDB: Do you also think that going forward profitability of Indian spinners will depend on the country’s price differential with global cotton prices?

MR: Profitability of Indian spinners depend on cotton prices in India. At present, cotton prices in India are not declining in tandem with international prices.

TDB: Can you explain the role that Texprocil actually plays in supporting the exporter fraternity?

MR: We at Texprocil are promoting export of cotton yarn, fabrics, home textiles and made-ups. Some of the important support given to members include collectively refuting trade barriers/restrictive practices imposed by importing countries, representing the industry in addressing policy and procedural related issues, actively engage in FTA negotiations with developed countries and collecting, collating and disseminating import/export data.

TDB: So, what export promotion measures does Texprocil take up to ensure visibility for its members?

MR: Export promotional services rendered by the council include continuously undertaking vigorous marketing efforts around the world by showcasing the strengths of the Indian textile sector; providing market related information to members; organising group participation in important fairs and exhibitions worldwide and promoting buyer-seller meets and B2B meetings in important markets. In addition, our activities include receiving trade delegations from major importing countries and providing web-based ‘market place’ platform to our members.

TDB: What has been the growth of Indian cotton and cotton yarn exports?

MR: In FY2014 total export of cotton went up by 1.84% over the previous year despite a 16.89% decline in exports to China. In fact, export of cotton to China has been gradually declining over the past three years, from $3,319 million in FY2012 to $2,244 million in FY2013 and $1,865 million in FY2014. This is very intersting a development. As far as export of cotton yarn is concerned, there was a 33% y-o-y growth in FY2014. Hence, there is widespread optimism.

TDB: What are your recommendations to the government to boost export of cotton and cotton yarn?

MR: Our suggestions are simple – move over to the logic-based incentives proposed several times by Texprocil from the present lobbying-based incentives and remove all uncalled for protection given to monopoly fibre manufacturers (viscose and polyester). This includes anti-dumping duties, higher tariff for intermediary products, higher incentives etc. We also recommend bringing all textiles, be it made out of cotton (consumed by the rich) or man-made and synthetic (consumed by the poor) at par when it comes to taxes, i.e., keep taxes at the lowest possible levels without exemptions. Appreciate the fact that 95% of the items reserved for handlooms are and have, over long periods, been produced on power looms. So, scrap the Handloom Reservation Act and with it the Hank Yarn Obligation (it is a mechanism to ensure adequate availability of hank yarn to handloom weavers at reasonable prices. But in reality 75% of hank yarn is consumed by power looms and over 50% of the so-called hank yarn is actually cone yarn declared as hank yarn). We also want the government to appreciate the fact that handloom is a handicraft and include it with handicrafts and promote them with a view of helping the artisan (not worker) get his due.