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Raw silk prices up 87%. Sector demands abolishing duty

Updated: 2010-12-13 Source: Fibre2fashion News Desk - India

All over the world, custom duty is lower on raw material & higher on finished goods, so that cost of domestic production is lower than imported products. Then only, is it possible to compete with imported products.

Unfortunately, polices of the Government of India are contrary, when considered in the case of the silk sector. While, custom duty on raw silk is 30 percent, that on silk fabric is only 10 percent. As a result, China is exporting silk fabrics to India at a price which does not cover even the cost of raw silk consumed, even when not considering, manufacturing expenses & profit.

It is China¡¯s policy to monopolize export market of silk fabrics and with that strategy in mind; it is regularly increasing the price of raw silk, making it beyond Indian exporters to export silk fabrics and whose exports are now marginal. Chinese raw silk which was available at Rs 1750 per kg in August 2010, which is now available at over Rs 3275 per kg on December 9, up an astounding 87 percent, in a matter of four months. Raw silk booking price from China has leapfrogged to US $54 per kg on December 9 against $40 per kg in September, due to which current cost of imported raw silk stands at Rs 3260 per kg.

On the recommendations of the Union Textiles Ministry, the Department of Revenue had authorized National Handloom Development Corporation (NHDC) on August 8 to import 2,500 tons of raw silk, duty free, which NHDC has not imported till date, which is the main reason for this exorbitant rise in prices of raw silk and if they import now, they will have to pay more than $54 per kg against less than $40 per kg prevailing at that time.

There are 150,000 powerlooms & 50,000 handlooms in Varanasi district alone, engaging 250,000 weavers. On November 28, all handlooms & powerlooms went on a one day token closure and a very big rally & meeting of over 50,000 weavers & traders was held. Their firm demand was abolition of custom duty on raw silk. The moot question that arose in those present at the rally is, as to why is the government averse to abolishing custom duty on raw silk?

Speaking to fibre2fashion, Mr GK Kediya, Convener-Yarn Development Committee, Banarasi Vastra Udyog Sangh said, ¡°The policies of the government are based on based on false presumptions & fallacies. It is wrong to suggest that, cheap Chinese yarn will affect adversely domestic raw silk producers. Domestic raw silk is no substitute for Chinese yarn because, denier (thickness) of Indian yarn is not uniform, due to bad quality of cocoons & obsolete reeling machines, so using Chinese raw silk is a must.

¡°The Indian produced raw silk cannot be used in raw form. Only Chinese raw silk can be used without twisting and is used totally on powerlooms in Varanasi without twisting. Cheap or costly, domestic raw silk is no substitute for Chinese raw silk & there is no competition between the two as their end uses are different.

The Indian domestic raw silk producers keep their prices in parity with the Chinese raw silk. A 65 percent increase in Chinese raw silk price has resulted in same increase in the domestic raw silk prices. Both producers of cocoon & reelers are reaping rich harvest without any increase in their cost of production, which is pure profiteering. As such it is wrong to presume that, abolition of custom duty on Chinese raw silk will adversely affect domestic producers & reelers.

¡°Secondly, realizations from import duty are now negligible and currently, the government is not really earning anything by levying custom duty on raw silk. 80-90 percent import is through duty-free advance licenses which are issued against commitment of export of silk fabrics. Due to abnormally high prices of raw silk, we are in no position to export pure silk fabrics in comparison to China¡¯s cheap prices, which has resulted in India being thrown out from silk fabrics export global market.

¡°To correct the inverted duty structure, import duty on silk fabrics should be raised to 40 percent as demanded by Varanasi silk industry. The duty realization on this will far-far exceed the negligible duty realization through custom duty on raw silk. Further, abolition of duty on raw silk & increase in duty on silk fabrics will rejuvenate the Varanasi & Bangalore silk fabric manufacturing industries, which have now closed down and will also mean resumption of silk fabric exports.

¡°Another anomaly is in the inverted duty structure, whereby; there is only 21 percent custom duty on twisted raw silk against 30 percent on raw silk (Not Thrown). Cheap imports of twisted raw silk, has put an end to all units of twisting. This variance should also be corrected by abolishing custom duty on both varieties.

¡°Imports are made even from countries not producing raw silk, like Brazil (69 tons), Uzbekistan (82 tons), Iran (29 tons), Korea (16 tons), Vietnam (46 tons) adding up to 242 tons 2009-10, against just 75 tons in 2008-09, which I expect to further increase in coming years, if the policy is not corrected. It is only because no custom duty is levied on import of raw silk from these countries, that Chinese raw silk is repacked by these countries & exported to India.

¡°In 2008-9, 8,392 tons of raw silk was imported at a cost of US $380 million (Rs 17 billion). In 2009-10 however, only 7,340 tons was imported at the same import value, as prices had increased. I expect that, in 2010-11, still much less quantity will be imported by paying the same amount, because of 65-70 percent increase in prices of raw silk.

¡°Custom duty on raw silk, both (thrown & not thrown), should be abolished & that on silk fabrics should be raised to 40 percent as it will; give new lease of life to Varanasi & Bangalore silk industry; remove the evil of under-invoicing; put an end to issuing of fraudulent advance licensing; NHDC should immediately import 2,500 tons of raw silk duty-free and raw silk detained by customs authorities should be released immediately.

He concluded by saying, ¡°Overall impact of all this has created a multiplier effect, resulting in overall increase in cost of production of the Varanasi silk sector and unless the Government takes corrective measures on priority basis, the world¡¯s largest cottage industry will be ruined¡±.
Fibre2fashion News Desk - India