The Indian cotton-spinning sector is in dire straits and is facing a crisis not seen in the past one decade, according to an apex body representing the industry. The Northern India Textile Mills Association (NITMA) has said that textiles industry is facing slowdown, which has forced spinning companies to cut down their production and shut down their mills, resulting in huge job losses.
According to the industry body, excess spinning capacity in the country and poor demand for yarn from overseas markets has led to accumulation of yarn stocks and liquidity crisis in the industry.
The industry body claimed that India's cotton-spinning industry has been struggling with profitability over the years due to a sharp decline in yarn exports, cheaper import, state and central level taxes on export and high interest rates. Adding to the woes, the recent spurt in cotton prices has resulted in higher input costs for the spinning sector in the country leading to financial stress.
According to NITMA, the cotton and blends spinning industry is witnessing biggest crisis in the past 9 years. The previous such crisis was seen in 2010-11, the textile mills association said.
The textile industry was hit by sharp decline in export of cotton yarn in the last few months. During April-June period of this fiscal, export of cotton yarn fell by 34.6% to $696 million as compared to $1,063 million in the same period last year.
The slowdown in the textile industry, which provides employment to about 10 crore people directly and indirectly and accounts for 2% of GDP, have resulted in closure of ginning factories, spinning mills and handloom units due to heavy losses. The industry has sought government intervention to prevent job losses and avoid the spinning sector from turning into non-performance assets (NPAs).
Textile spinning mills have cut down its production which have resulted in closure of nearly one-third of spinning capacity across India, said NITMA. The mills are incurring huge losses and are not in a position to buy and consume the Indian cotton, it added.
The association warned that upcoming cotton crop of about 40 million bales, which is valued at Rs 80,000 crore, would not find buyer in domestic and overseas market as the Indian market was not market-driven since the government directly supports farmers with minimum support price (MSP) level.
Here are some of the issues that are holding the Indian cotton-spinning sector back:
- Higher taxes: The industry body alleged that a multi-stage tax is levied on every value addition. State and central taxes, plus levies are resulting in Indian yarn becoming non-competitive in global markets.
- High cost of raw materials: Compared to its global competitors, Indian spinning mills have to spend more on raw materials, which directly affects its cost of production, and hence the country's competitiveness in the global market. The cost of raw materials is much higher as compared to global prices, which results in loss of Rs 20-25 per kg to Indian mills.
- Cheaper Import: The cotton-spinning industry has been hit by cheaper import of garments and yarn from Bangladesh, Sri Lanka and Indonesia. This is because of lower cost of their raw materials as compared to India.