Ahead of the forthcoming Union Budget 2022-23 to be presented by Finance Minister Nirmala Sitharaman in the Parliament on February 1, the Indian textile industry is seeking removal of import duty on cotton, as it has become costlier than ICE cotton. Currently, cotton import attracts 5 percent basic customs duty and 5 percent agri infra development cess.
In its pre-budget consultation with the Finance Minister, the Confederation of Indian Textile Industry (CITI) has emphasised on the removal of 10 percent import duty. If the government removes the duty, rising cotton prices are expected to come under control due to the psychological pressure. India generally imports only extra-long staples, organic and sustainable cotton, but the removal of import duty will also lead to more import of medium and short staple cotton. Industry has also suggested reduction of basic customs duty on backing textile fabric, a raw material used for making man-made textile carpets, from 25 percent to 10 percent.
Further, there is a suggestion that the 2.5 percent duty payable on dissolving grade (DG) pulp should be removed. Industry bodies said that there is shortage of around 50 percent of soft wood DG pulp. It is imported from Europe, North America and South Africa. It is used to make high quality viscose rayon. “Duty free import of viscose fibre is allowed under the ASEAN Free Trade Agreement but the duty payable on import of pulp is not justified for this,” they said.
CITI and other industry organisations have also raised the demand to increase rates of duty drawback. After the implementation of GST in November 2017, there was a huge cut in the rates of duty drawback for the entire textile value chain. Therefore, taxes of central and State Govt. are not being reimbursed. Duty drawback was increased on January 28, 2020 on some items, but rates of many products are still lower than before November 2017. Earlier the rate was between 3 to 5.1 percent, which is lower than 1.6 percent even after increase in January 2020. The industry said that duty drawback should be increased to encourage the textile and clothing industry to achieve a target of $350 bn by 2025. Industry representatives have also demanded increase in the duty drawback on viscose stable fibre from 1.5 percent to 1.9 percent on the lines of man-made fibre.
CITI has also raised issues related to GST in its pre-budget suggestions. It said that duty credit scrips should be allowed for payment of IGCST, CGST and SGST. Currently, it can utilise duty credit scrips only for payment of Basic Customs Duty and Customs Cess. Due to the existing limits, exporters are not able to fully utilise duty credit scrips. As a result, they have to use their liquidity for GST payments.