Globally, man made fibers account for over 60% of fibre consumption. In India, they account for around 40% of total fibre consumption and the share of man-made fibre based products in textile exports is less than 25%. One of the major reasons for low utilization of man-made fibers in India is uncompetitive cost of fibers and duties play a major role in making man-made fibers expensive.

Two producers account for most of the polyester production in India and in the case of viscose there is only one major producer. This situation allows fibre producers to fix their prices on the basis of import parity. In other words, producers calculate the duty paid landed price of imported fibers and fix their prices at that level, and  make imports an unviable option. In the process, Indian spinners are actually paying customs duty even for domestically produced fibers.

Basic Customs Duty applicable to man made fibers is 5% and excise duty has been increased from 4% to 8% in this year’s Central Budget. With Additional Customs Duty, Education Cess and Countervailing Duty, the total incidence of duty on imported fibers amounts to 18.62%. On top of this, Anti Dumping or Anti Subsidy Duties are also applied on imports quite often.

The increase of 4% in Excise Duty alone has made these fibers costlier by Rs 2,800 to Rs 4,500 per tonnes, for various man made fibers and their blends.

Fibre is the primary raw material for the textile industry. The increased burden of duty will have to be borne by the textile industry; they will not be able to pass it on to their consumers because of lower demand in the context of economic slowdown.

The only objective of the duty increase seems to be to generate additional income for government. And any move for revenue mobilization through increased duties on primary raw materials of labour intensive industries can only be compared with killing the goose that lays the golden egg.