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Just like Charles Dickens wrote in his famous novel, ‘A Tale of Two Cities - It was the best of times, it was the worst of times’, on January 1, 2005, the textile industry was both glad and sad. Glad because, it marked the lifting of the cap which restricted its freedom to export for the last more than four decades. Sad because, the government thought it fit to cut the rates of the Duty Entitlement Pass Book (DEPB) for cotton textile products. Exporters in Tirupur told this columnist that the cut in DEPB rates was unexpected of a government that professes itself to promote the exports of the cotton textiles in the context of the free regime. That’s where the question comes - why did the government lower the DEPB rates right on January 1, 2005?

Government sources confirm that this was done to help the export move up. In fact, what the government did was not a blanket reduction, but a calculated revision of the rates. Also, it was a correction of the distortion brought to its notice by its earlier revision of September 2004. For that matter, the Federation of Indian Export Organisations (FIEO) has welcomed the revision saying that it was one of the most important issues, which it had been pressing the government since the September revision. It has pointed out that the DEPB rates for the blended textiles and woollen textiles had been reduced to 30 per cent from what was applicable to September 23, 2004. Likewise, the revised rates are 22.5 per cent lower than the September rates for man-made fibres and silk textiles. Hailing this as a positive signal, the FIEO said that the new rates would further the competitiveness of the textile industry.

So, there are segments to welcome the move, but the players in the cotton textile exporters are visibly sad. The Apparel Export Promotion Council (AEPC) has said that the treatment given to the cotton garments exporters is not appropriate to the situation. That’s because, the DEPB rates for the cotton garments have been slashed to 4.4 per cent from 6.1 per cent. This will affect a number of garments like skirts, blouses, shirts, track suits, jeans, trousers, child wears and sweat shirts. Likewise, the AEPC has described the reduction of DEPB rates for cotton T-shirts from 6 per cent to 3.6 per cent as drastic. It is equally sad that the rate for the cotton track suit has been cut to 3.2 per cent from 6.1 per cent.

Hence, the AEPC has urged the government to restore the earlier levels as only then, the exporters could honour the existing orders. In particular, the AEPC chairman, Mr A Sakthivel, has requested the commerce minister, Mr Kamal Nath to take a relook into this. The Tirupur Exporters’ Association (TEA) has also urged the government to withdraw the move. Although it is understandable that the line of thinking between the TEA and the AEPC is the same with Mr Sakthivel heading both the bodies, the TEA has every reason to feel directly hurt in the matter it being an apex body of cotton knitwear and garment exporters. This body has been expressing the hope that in a couple of years once the quota regime dies, the export earning would double from the present level of around Rs 5,000 crore per annum. So, anything the government does that could affect the working of the exporters in Tirupur could mean a drastic fall in the prospects for export earnings.

But, the Textile Export Promotion Council (Texprocil) has reacted rather sharply. It has expressed shock and dismay at what it rated as the unfair and unjustified reduction in the DEPB rates for cotton textiles even as the rates have been increased for manmade products. Mr BK Patodia, chairman, said that this was like robbing Paul to pay Peter, but certainly not the best way to deal with policy issues at such a crucial juncture. He has pointed out that there is no corresponding reduction in the basic customs duty for these products. Major issues like quality of the cotton, contamination proportion as also the non-availability of extra long staple cottons remain unresolved.

Equally disturbing for the body is the haywire drive in the cost calculation arising from such reductions. This would impact the pricing and hence the profits. There would be little scope for further negotiations with the importers on these vital issues right now. Another dimension to the issue is that following the removal of quotas, prices are expected to fall. With a reduction in DEPB rates, the margin left with the manufacturers would be thin. The Texprocil has warned that if the DEPB rates were not restored to previous levels, there would be a sharp decline in the export earnings from cotton textiles which posted a 17 per cent increase last fiscal to reach $ 4.1 billion.

These are some direct and sensitive issues which merit serious unbiased consideration by the government. Contrary to earlier contentions, as of now, there is no indication of a run-away surfeit of orders arising from the removal of the quotas. Already, the global business profile is changing with spot audits of exporters by the importers. With Pakistan and China impressing the importers with modernised and cost-effective textile industry, India cannot afford to have anything that would upset the prospects right now.

- P S Sundar