In recent times, huge import of Chinese silk fabrics is posing a threat to the Varanasi silk industry, largely dominated by MSMEs. To voice this concern, the silk industry even observed a 1-day strike in late November 2010, but the Centre remained unmoved.

The current scenario: There is 10% customs duty on silk fabrics and 30% on raw silk. On the contrary, the general trend followed worldwide is a lower customs duty on raw material over that of finished products.

To retain monopoly in the global silk fabrics export market, China has adopted a smart strategy, whereby it has increased raw silk prices to Rs 2,900 at present from Rs 1,750 in August 2010. However, current raw silk exports from China are almost nil, according to G K Kedia, convenor of Yarn Development Committee of the Banarasi Vastra Udyog Sangh (BVUS).

Consequently, China exports silk fabrics at skyrocketing prices and taking advantage of India’s reverse import duty structure, it is enjoying dumping of the same — adversely affecting the domestic silk fabric traders, which are mostly MSMEs.

In a major endeavour to protect the interest of the silk players, the Yarn Development Committee has recently written to the Finance Ministry and the Commerce Ministry requesting to abolish the import duty on raw silk and raise the same to 40% on silk fabrics.

“Huge Chinese dumping following inverted import duty structure, coupled with non-availability of requisite silk yarn is impacting the Varanasi silk industry,” said an official of BVUS to a Bizxchange correspondent on conditions of anonymity.

The problem

According to the government, the import duty on raw silk is higher to save domestic producers. But the point is that Indian raw silk is far below the quality of Chinese silk due to the following reasons:

•Poor cocoon quality 

•Use of obsolete reeling machines to make yarn

Another disadvantage of Indian raw silk is that it needs twisting, while Chinese raw silk does not require twisting before use.

To add to the sector’s woes, domestic raw silk producers have raised prices at par with Chinese raw silk.

“Recent times have been really bad for the region’s silk players, primarily due to influx of Chinese silk at high costs,” said V Jamal, proprietor of Jamal Silk Palace, a small silk trader in Varanasi.

These factors have prompted domestic silk players to explore newer territories with zero import duty, such as Korea, Brazil, Iran and Vietnam.