Tamil Nadu Chief Minister writes to Piyush Goyal on high yarn prices

30 November 2021, Mumbai:

Just a few days ago, the textile and garment industries in Tamil Nadu staged a loud protest by shutting down and going on a hunger strike for a day over the problem of rising yarn prices. 

MK Stalin, the Chief Minister of Tamil Nadu, has now pressed the Union Textiles Minister on the issue. In a letter to Piyush Goyal, he stated that the current crisis has resulted in a large number of export orders being canceled and difficulties in meeting long-term export obligations.

"If this scenario does not improve, a considerable number of garment and home textile units may become unprofitable in the near future, resulting in closure and widespread unemployment and industrial discontent." 

According to my understanding, one of the main causes of cotton price volatility is the imposition of a 5% Basic Customs Duty (BCD), a 5% Agriculture Infrastructure Development Cess (AIDC), and a 10% Social Welfare Cess on these components in the Union Budget 2021-22, resulting in overall import duty of 11%. 

Another factor driving up cotton prices is the Cotton Corporation of India's (CCI) bulk discount to traders who "purchased nearly 70% of MSP cotton auctioned by CCI at a lower rate during the cotton season due to the availability of a 90-day free period and thereafter speculated the market," according to the letter. 

He asked the Textiles Minister to instruct the relevant ministries to act and adopt policy measures to correct the situation, defend the textile sector, and avoid job losses.

To avoid more speculation in the future months, he advocated the abolition of the 11% import tariff on cotton, as well as a rethink of the CCI's commercial terms and conditions for e-auction of cotton by lowering the minimum lot size to 500 bales, which is sustainable for MSMEs. 

Furthermore, yarn makers may be granted preference over dealers in the acquisition of cotton. The CM also advocated the extension of a 5% interest subsidy to spinning mills for cotton procurement during peak season (December to March).

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