But for the recent slight rise in prices caused by a slight uptrend in global prices after the shutdown of some Asian capacities, the prices of PSF would have fallen below the very low quality cotton bobbins that remain basically as a byproduct of cotton fibre production and are usually sold under the name "cotton waste" for low value usage. Currently the prices of cotton waste are hovering at around Rs 40 per kg, whereas PSF is only marginally above that.

This has happened because of two factors: the transition in composition of textiles from mostly cotton fibre to mostly polyster fibre. This is an international trend which has started running its course in India. But the polyester staple fibre (PSF) industry is facing serious problems due to the government's excise policy. The government has traditionally seen cotton as a poor man's commodity,while it has seen polyester as a luxury item.

The result is a higher excise imposed on polyester fibre, which adds on to the cost of the final product. This creates a serious problem for India's PSF manufacturers: they are penalised for adding value to the raw material PTA or DMT to make their fibre. The value addition process is not rewarded because the government imposes a higher excise duty on the finished product: it becomes more profitable for the companies, therefore, to simply export the raw material.

The situation has been further compounded by the fact that the recent financial crisis in south-east Asia has resulted in a serious price disadvantage for Indian manufacturers vis-a-vis manufacturers from that region. In fact, with the higher excise duty, Indian manufacturers find it increasingly more difficult to cope with the low landed cost of imports, unless they set up large capacities which enable them to sell in the markets in high volumes. Very few Indian manufacturers, barring RelianceIndustries and Indo-Rama Synthetics, can boast of such huge capacities.

The government not only penalises polyester fibre,but also follows a strange policy under which, in a mixed bobbin of polyester fibre and cotton fibre, the rate applied is the higher rate of 20 per cent which go towards production of pure cotton and therefore are used in high-end garments, are not excisable at the high rate at all. The result is a skewed indirect taxation policy which harms rather helps the industry.

It is believed that the trend of replacement of cotton fibre with polyester fibre will continue, allowing Indian people to afford lower priced garments (these days, the prices of cotton garments have rocketed, placing these textiles in the premium segment manufactured mostly under foreign labels). But unless the government reverses its excise policy in this field, and stops penalising value addition, further damage is expected from foreign manufacturers.