India’s cotton yarn exports to China have been affected by tariff. China imposes a duty tariff on cotton yarn imports from India of 3.5 per cent to five per cent. This means Vietnam has emerged as a major competitor for India in terms of the export of cotton yarn to China. Vietnam gets the advantage of duty free access to that country.

A major chunk of mills from China shifted to Vietnam in the last five years, making it a conversion centre. Yarn produced in Vietnam thereby enters China without duty tariff. Though India remains the largest exporter of cotton yarn in the world, the country’s share declined to 25 per cent in 2017 from 30 per cent in 2015. In the same period, cotton yarn exports from Vietnam, the second largest exporter with a 19.94 per cent share in the global market, grew by 252 per cent.

India is making efforts to bring down the duty tariff so as to regain the advantage. But various issues of refunding related to embedded taxes, as in the form of duty for electricity and petroleum products used in the cotton textile value chain, need to be addressed if exports have to pick up.