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Govt may restore duty drawback scheme on exports of cotton yarn

03 Aug 2011 Evaluate

The Finance Ministry is mulling over to restore the 6% Duty Drawback on exports of the natural fibre yarn which was suspended in April 2010, to cool down domestic prices by discouraging exports. The situation has since changed drastically, as prices have declined sharply. Prices of cotton have declined to Rs 150 per kg now from over Rs 170 a kg in August last year.

Recently, the Ministry of Textiles has requested Finance Ministry to restore the tax refund scheme on the exports of natural fibre yarn. The Commerce and Industry Minister Anand Sharma, who got additional charges of textile ministry, said that he would recommend restoration of the benefit with effect from April 1, 2011, to the Finance Ministry.

Last year in April, government has removed the 4% incentive on cotton yarn exports with the intention of checking prices in domestic markets. This move of government faced stiff opposition from the textile industry, the spinning mills across India went on a day strike, against the withdrawal of incentives on cotton yarn exports by the government. Yarn exports constitute less than 10% of overall textiles exports, but have a potential to derail exports of value-added and job-creating products like garments and made-ups.

During the last fiscal year, government had put a cap of 720 million kg on yarn exports. However, as the price of cotton yarn reduced in domestic market, government removed the restriction on cotton yarn exports. Recently, the government also restored the Duty Entitlement Pass Book (DEPB) scheme on cotton yarn with retrospective effect from April 2011. In DEPB scheme, exporters get refund of tax incidence on the import content of their export products.

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