Bangladesh is the largest market for export of cotton yarn from India in value terms. China and Bangladesh put together account for 50% of the yarn exports from India in quantity terms for the period April - November 2020. This clearly indicates that there is a need for market diversification to focus on countries where India's share of the yarn imports is less than 20%.

Markets such as Russia, South Korea, Vietnam, Turkey and a few of the Central American countries offer significant scope to increase the exports of cotton yarn from India. All these countries are sourcing most of their requirement of cotton yarn from their neighbouring countries due to various reasons, including Regional Trade Agreements, tariff advantages and other such factors. Considering inherent advantages of yarn manufacturing in India it is possible to increase India's market share in these countries with an in-depth understanding of the market requirements and by undertaking appropriate marketing strategies.

It is important to note that the recovery in cotton yarn exports was faster compared to its production as outbound shipments increased y-o-y in each of the months during April-October 2020 except for the initial two months of FY21. Where the shipments fell by 80% in April 2020 and by 24% in May 2020 due to lockdown restrictions. Subsequently, cotton yarn exports increased by 10.8% to 557 thousand tonnes during April-October 2020. The rise in cotton yarn exports was mainly driven by a surge in outbound shipments to Bangladesh which jumped by 74.2% to 140 thousand tonnes in April-October 2020. This is backed by duty draw back incentive in Bangladesh. This enables high, export-oriented readymade garment factories to import yarn and fabric which reimburses all customs duties paid on imported yarn, and fabric (but not taxes such as the VAT and Advanced Income tax). As a result, Bangladesh replaced China to become India's largest cotton yarn export destination during this period. Exports from India to China have also been impacted due to increasing reliance of China on Vietnam and Pakistan for its cotton yarn needs.

The share of Bangladesh in India's total cotton yarn exports expanded to 25% in April-October 2020 from 16% in the corresponding period a year ago while the share of China contracted by 1% to 25% as cotton yarn exports to China increased by a slower 5.3% to 139 thousand tonnes during the period. While international demand for cotton yarn is expected to stay stable backed by an increase in economic activities with the launch of COVID-19 vaccination drive in various parts of the world, it remains to be seen if Bangladesh continues to import significant quantity of cotton yarn from India.

Mid-January to mid-February every year is a dull period for cotton yarn export due to Chinese New Year holiday season. Even though the Chinese government has announced deferred holiday timelines this year to restrict mass movement of people fearing spread of COVID-19 pandemic, practically most of the textile factories are already closed for two to three weeks. Hence there is slowdown in export from mid-January onward. It is reported that Chinese spinning mills are operating at approximately 58 to 60% capacity over the past few months and are maintaining just about 5 days inventory of yarn and over 40 days inventory of cotton thereby indicating that robust demand conditions will continue post-holiday season. Internationally, cotton prices were stable while yarn prices saw a declining trend. However, there was a bit of volatility in prices of blended yarns in the month of January.

In view of the Southern India Mills Association (SIMA), Tuticorin port has the potential to at least double the volume of coastal movement, cost and services are made attractive. However, it was pointed out that existing infrastructure facilities and terminal operators are not encouraging the coastal cargo. There is an abnormal delay in unloading containers in the terminals and because of this abnormal delay most of the mills in Coimbatore Region prefer Cochin port instead of Tuticorin port. Further, various charges which are levied like service charges for LCL, 20‘ and 40‘containers, GSP charges, certificate of origin, clearance expenses are high. It is to be noted that for transportation of yarn from Coimbatore to Colombo, the logistic cost is around 55,000 (INR). Considering the logistic cost (road transportation – Rs.26,000/-)from mills in Coimbatore to port destination (VOC port) and Ocean Freight from Tuticorin to Colombo (Rs.20,000/-), the port handling charges, and other expenses is around Rs. 9,000/- which is very high.

The empty container movement is also adding high cost in the logistic expenses. The port authorities were requested to consider the storage of empty containers at appropriate places to enable the exporters to make use of the containers for their export at a competitive price.

China, the largest importer of cotton yarn, has replaced India with Vietnam and Indonesia, as they have duty-free access while Indian yarn carries a 3.5% import duty. In view of the sharp decline in exports, many production units are shutting down and need urgent policy therefore the industry players requested the government to extend the 3 per cent interest equalisation to cotton yarn.

India’s cotton yarn and fabric exports are struggling because of the duty disadvantage faced by the Indian exporters in the major markets. Texprocil has appealed to the government for the policy intervention. According to Texprocil, made-ups and garments exports are recording a positive growth mainly on account of ROSCTL (Rebate of State and Central Taxes and Levies) scheme extension and therefore has also asked to cover cotton yarn and fabrics exports in the ROSCTL schemes and refund the state and central taxes. These taxes account for seven per cent of the value and will go a long way in mitigating the serious situation in the spinning and weaving sector.

In the view of to benefit entire value chain of the textile industry, government in Budget 2021 has introduced Mega Investment Textiles Parks (MITRA) scheme, which they believe will facilitate 40 to 50 leading textile players to become ‘global champions’. “Tamil Nadu being the largest textile manufacturing State, is planning to develop three mega parks under MITRA, Andhra Pradesh and Telangana already have one such park each. This would facilitate attracting large scale investments including FDI and JVs. This scheme will enable the textile industry to become globally competitive, attract large investments and boost employment generation.

Import duty on cotton

Imposing 5% basic customs duty and 5% agriculture cess on cotton and cotton waste will lead to a cascading effect on the entire cotton value chain. India is mainly importing long staple cotton from the USA and Egypt for spinning fine count yarns in addition to comber noil and waste cotton from Bangladesh for consumption in OE spinning. Reason for such import is due to non-availability of required volumes in the domestic market and the additional duty will lead to increase in input cost for manufacturing finished products such as, fine fabrics, home textiles and denims. Going further industry hopes that government will reverse this additional burden on the cotton textile industry.

Due to large variation in cotton grades, cotton yarn grades, stocking cycles, production costs and other aspects, the profit gap of each mill was also large, but overall, it was difficult for spinners to make profits in the year 2020. In the January 2021 report on ‘Indian Cotton Spinning Industry Trends & Outlook’ published by ICRA, credit outlook for the spinning segment has been revised to ‘Stable’ which is an encouraging factor for the entire cotton value chain. It is expected that the present momentum in demand for cotton yarn, both in domestic and export markets to sustain the growth trajectory in the financial year 2021-22.

Sources

The South Indian Mills Association, ICRA, TEXPROCIL, Cotton Corporation of India, Cotton Yarn Market.