Fluctuating cotton prices, increase in power tariff and wrong government decisions have led to the crisis in the textile industry.
Fluctuating cotton prices, increase in power tariff and wrong government decisions have led to the crisis in the textile industry.
Apart from these, a poor demand for textile products has added to the problems, the Bank of Baroda Capital (BoB Capital) said in its report.
BoB, on the instructions of the textile ministry, studied the current state of the industry while preparing a debt restructuring plan. DNA has a copy of the report.
Tamil Nadu and Andhra Pradesh have the maximum number of textile mills in the country but there’s never adequate power in both states. As a result production takes a beating and ultimately the industry suffers, the report said.
The International Cotton Advisory Committee (ICAC), an association of countries trading in cotton, had initially projected a shortfall of 10% in the availability of cotton for the 2011 fiscal, the report said.
This led to a steep increase in global cotton prices between October 2010 and March 2011. Expectedly, prices in the domestic market, too, rose considerably --- from Rs35,000 per candy (356kg) it went up to Rs62,000 per candy.
But cotton prices crashed in April 2011 and dropped to Rs32,000 per candy within three months. “This sudden fluctuation led to more than six million bales of high-end cotton remaining stuck with mills,” the report said. “The losses on account of the devaluation of these stocks are estimated to be around Rs6,000 crore. Similar trends in the man-made fibre segment led to a further loss of Rs500 crore for spinning mills,”
The dip in cotton and yarn prices in 2011-12 left several mills in Tamil Nadu bankrupt, K Venkatachalam, chief advisor of Tamil Nadu Spinning Mills Association, said.
“We have renewed our debt restructuring proposals before the RBI through the Confederation of Indian Textile Industry (CITI),” he said. “We expect the RBI to save several units from being closed down permanently.” The CITI is an umbrella organisation representing the entire textile chain.
The BoB report also points out how government decisions have affected the industry. Though the demand in the domestic market was on the downslide since January 2011, “exports were not permitted”. This resulted in nearly 500,000 tons of unsold cotton yarns piling up in mills.
Following the crash in the global cotton prices, the prices in the domestic market fell by more than Rs90 a kg leading to a loss of about Rs4,500 crore for mills, the report said.
So, the total loss incurred by mills because of devaluation of fibre and yarn inventory is estimated to be around R 11,000 crore.
M Ramaswamy, managing director of Alpine spinning mill in Tirupur, Tamil Nadu, lost Rs6 crore last year because of fluctuating cotton prices. At least 120 small mills in Tirupur have incurred huge losses, and debt restructuring is necessary to help them recover, Ramaswamy said.
The government’s decision to allow 48 duty-free items from Bangladesh hit the domestic market. “Several policy changes and unnecessary government intervention led to this crisis,” DK Nair, secretary general of CITI, said.
Despite repeatedly trying, DNA failed to get a response from the commissioner of textiles.
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