India's apparel industry is urging the government to extend benefits to garment exporters in the hope that higher demand from overseas buyers will in turn drive up sales of locally produced cotton and yarn.

In particular, the Apparel Export Promotion Council (AEPC) wants the Market Linked Focus Product Scheme (MLFPS) to be to reintroduced to compensate for the phasing out of the Duty Entitlement Pass Book Scheme (DEPB) tax refund scheme, which finishes at the end of September. The DEPB incentive has already been withdrawn for the US and EU markets.

Under the MLFPS, exporters received a 2% incentive on the value of exports - but they now want this to be lifted to 7.5% from 1 October.

The calls come after the government last month decided to restore tax incentives for raw cotton and cotton yarn exports. The duty drawback - which offers exporters a refund of import duties - is 5.6% for raw cotton and 7.67% for cotton yarn. It is being backdated to 1 October 2010 and 1 April 2011 respectively.

In a letter to Anand Sharma, the Minister of Commerce, Industry & Textiles, AEPC chairman Premal Udani says these benefits "will definitely give a big boost to the producers and exporters of these basic/industrial raw materials."

He adds that the reason behind falling cotton demand and prices "is not fully understood," and goes on to say it is because the "value added segment is facing severe competition and contraction of demand from the end consumers."

"Very few countries compete with us in terms of acreage/total production [of cotton/cotton yarn]. Unfortunately this locational advantage...has no benefit for the value add apparel/made-up industry, as these sectors must compete with international buyers for Indian raw materials.

"Consequently, in spite of being in the top three producers for cotton/cotton yarn, the value added segment has less than 2.5% share in world market of apparel."

Udani argues that a $1bn increase in apparel exports would require an extra 450m metres of fabric and over 75m kilos of yarn.

"The point being made is that incentivisation of value add product automatically creates demand for the entire value chain."

He adds: "With fears of double dip recession and overall nervousness in overseas markets, the government's support is badly needed."