The Cotton Textiles Export Promotion Council of India termed the cut in DEPB rate as "unjustified and unfair" and said this should not have been done as there had been no corresponding reduction in the basic customs duty for the items. The DEPB rates are intended to neutralize the incidence of basic customs duty on exports.

Council Chairman B K Patodia in a statement said with issues like non-availability of extra long staple cotton and quality yet to be resolved, exporters of cotton textile products were depending to a large extent on imports of cotton. So cut in DEPB rates at this stage was "unjustified."

Last week, the government cut back DEPB rates for cotton textiles from 55 to 40 percent while hiked the same for man-made and blended textiles by 22.5 and 15 percent respectively.

Cotton textiles account for nearly 70 percent of India's total textiles and garments exports of over 12 billion dollars. The government's cut on DEPB rate for cotton textiles was aimed at garnering revenue, industry sources said.

Patodia said, "Rob Peter to pay Paul is not the best policy in vital sector such as textiles especially at a time when the quota regime in international textile trade has ended at the end of four decades of protectionism."

The council chairman said the reduction in DEPB rates will affect cost and price negotiations by textile exporters with importers, especially for those who have already entered into contracts which are now under production and shipments.

Patodia pointed out that DEPB rate for cotton textiles had only just undergone cuts. With another reduction on December 30, it has come down by nearly 60 percent from the rate that prevailed three months ago.

He urged the textile and commerce ministries to restore the original rate taking a comprehensive view on the issue.

If the DEPB rate were not cut, the cotton textile exports which had reached 4.1 billion dollars in 2003-04 registering an increase of 17 percent, would decline.