Cotton yarn exports of India in the April- July period of the current financial year witnessed decline by 9.79 per cent due to slow pick up from the two large destination China and Bangladesh, which comprises around 50 per cent of overall shipments from India. China is the single largest market for Indian cotton yarn, accounting for 31 per cent of country’s exports. Therefore, a substantial decline in exports to China has a major impact on overall export performance. Exports to China have declined by a staggering 48.58 per cent during the April–July period in 2017

The decline in exports has put massive investments in this sector at risk due to a 60-65 per cent fall in capacity utilisation owing to the weak demand from domestic and global markets. Domestic cotton yarn manufacturers have been reeling under tremendous pressure since the demonetisation of the high-value currency notes in November last year. This is because a major chunk of the industry falls under the unorganised sector and deals primarily in cash. The industry has also suffered a hit due to GST levy of 5 percent that came to force after the goods and services tax (GST) was rolled out on July 1. Since cotton yarn manufacturers never paid any taxes in the past, compliance under the GST regime brought the entire business to a standstill, even before the July 1 deadline.

According to data compiled by the apex industry body Cotton Textiles Export Promotion Council (TEXPROCIL), India’s cotton yarn exports stood at 283.18 kg for the first four months of FY18. In terms of value, however, India’s total cotton yarn exports stood at $916 mn. Yarn exports, surprisingly, have rebounded a bit after falling by a third to 130 mn kg in the in the first two months of FY18 over 198.5 mn kg in the corresponding period last year. Trade sources held that recovery was temporary as Chinese traders’ were more inclined towards imports from Vietnam.

Vietnam is gaining market share at the cost of India mainly due to zero tariff on imports to China. Whereas, imports from India attract a tariff of 3.5 to 5 per cent. Apart from that, Chinese textiles mills have invested immensely in textile and apparel sector in Vietnam. So, they are buying back yarn to China from their own manufacturing units, thereby, cutting down imports from other countries including India. Interestingly, Vietnam has no base in cotton but it has nevertheless emerged as the largest supplier of cotton yarn to China, accounting for around 32 per cent of imports into China.