Indian Cotton Yarn Exports Dip Due to Rupee Appreciation

India’s cotton yarn exports have declined by 9.79 per cent in the April–July period of the current financial year due to slow pick up from China and Bangladesh, the two large destinations comprising around 50 per cent of overall shipments from India.

Data compiled by the apex industry body Cotton Textiles Export Promotion Council (Texprocil) showed 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.

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 per cent 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.

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

Yarn exporters from India, however, attributed the decline to the slow pick up from China. China is the single largest market for Indian cotton yarn, accounting for 31 per cent 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 per cent during the April–July period in 2017.

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

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 per cent 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.

According to Arun Sakseria, a city-based cotton and yarn exporter, the appreciating rupee aggravated the situation. Between April and July, the Indian currency appreciated by over 1 per cent to close at 64.19 against the dollar. But, the rupee reported an appreciation of over 5 per cent from its recent low level of over 67.02 against the dollar on February 17 this year.