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Although
such incentives would breach World Trade Organisation (WTO)
norms, they will help protect the sector’s
competitiveness in the global market the ministry argues.
The
ministry had earlier approached the finance ministry to
facilitate a higher refund. However, the finance ministry
rejected the demand and trimmed the incentives on a few
products used as raw materials.
Following
this, the textiles ministry moved the Cabinet note late
last month. Duty drawback moderates the affect of customs
duty, central excise duty and service tax paid on exported
items.
“The
duty drawback is prerogative of the finance ministry and
it has decided to reduce the rate. We differ. There is a
forum to discuss such issues. We have already sent a note
asking for comments from various ministries,” a top
official in the textiles ministry said on the condition of
anonymity.
It
is pertinent to note that subsidies were the main reason
for the failure of discussions between developing and
developed members of WTO. The United States provides $4
billion in subsidy to around 20,000 cotton farmers. This
in turn impacts the livelihood of peasants in African
countries, which have been demanding the reduction in the
assistance by the US. The US, however, has been avoiding
any further discussions on the issue.
“We
are aware that such incentives are non-WTO compliant but a
raise in duty drawback is essential as input costs have
increased. Also, the competitiveness in the global market
would fall as China and Pakistan have enhanced assistance
to their respective sectors,” the official said.
Earlier
this year, China and Pakistan extended various sops to the
industry to push textiles export. China enhanced the VAT
refund rate on synthetic from 9% to 13% and on cotton from
11% to 13% with effect from August.
At
the same time, Pakistan introduced a scheme to facilitate
5% refund of interest on investment in machinery and 3%
interest subvention on credit to meet working capital
requirement. It also started providing R&D assistance
at 6% to garment exporters.
In
India, the finance ministry cut duty drawback rates for
higher quality silk fabric, wool tops, woollen yarn, grey
cotton yarn and a few other items as rupee depreciated
more than 10% in the currency market this fiscal,
increasing export realisation.
The
industry feels the reduction in the incentives would lead
to fall in textile exports.
“The
textiles sectors in all the three countries are competing
with Vietnam and Bangladesh. While more sops in China and
Pakistan would boost their exports, the Indian firms would
lose out,” Confederation of Indian Textiles Industries
secretary general DK Nair said.
Industry
bodies are expecting lower exports this year as compared
with $21.46 billion in 2007-08.
Source
: Financial Express - Bombay, India, dated
02/10/2008
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