The increase in the excise duty from 4% to 8% on man-made fibre and yarn, and on several other inputs for synthetic textiles in the Budget 2009-10 has contributed to the declining profitability of the synthetic fibre sector of India. Synthetic textiles make up around 65%-70% of global apparel trade, out which Indian exports of synthetic textiles is around 20% - 25% as cotton continues to be the dominant segment in the domestic textiles industry.

The tough competition, overcapacity and demand slowdown have put the companies in a dilemma over the price hike. The general feeling in the market is that customers may not be able to digest the additional burden, said Jaykishan Pathak, President, the Bombay Yarn Merchants Association.

He said since, spinners, particularly the mainline spinners have not passed on the benefits of the last excise cut, this time the situation is such that they will have to absorb the hike as production capacity of partially-oriented yarn is rising, whereas  demand is subdued in the local market and if spinners hike prices it will be difficult to digest the hike.

R.L. Toshniwal, Managing Director, Banswara Syntex, said the nominal profits made in the blended yarn sector will be wiped out due to the excise hike as passing it on may not be easy. Reports suggest that spinners based in south India have hiked prices by Rs 2.50 a kg on polyester-blended cotton, which is a 1.5% hike as producers are taking no chances to pass on the burden before studying the market’s cost absorption ability.

According to G K Gupta, Chairman of the Synthetic and Rayon textiles export promotion council, hike in excise is going to affect export oriented units as chances of enhancement of drawback rate seems to minimal, such a step will result in negative growth for exports.

O.P. Lohia, Managing Director, Indorama Synthetics said that it is hard to understand the logic behind the government’s move to increase the excise duty on man-made fibre. Though it is difficult to pass on the prices to the end-consumers as market is resistant to a price rise. Reliance Industries, Indorama Synthetics, Bombay Rayon, Grasim Industries among others are the major textile firms operating in the synthetic textiles sector which are likely to be impacted by the government’s recent move.