If industry leaders have been demanding supply of key inputs for manufacturing processes at global prices, that seems justified. The clamour for this is getting louder with each passing day. The textile and apparel sectors face the same situation in the absence of any firm policy action from the Central Government.
For the textile industry the first major material is raw cotton – start of the value addition process to yarn to fabric and fabric to garments and garments to other items such as made ups etc., but the situation is such that the country has become deficit in cotton production from surplus a few years ago. An additional 75 lakh bales is required to continue exports and achieve the target of dollar 350 bn size of the industry by 2030. After the imposition of a 11 percent import duty on cotton, the price of the fibre in the domestic market has gone up by over 15 percent. Cotton from the state owned Cotton Corporation of India (CCI) at the government fixed Minimum Support Price (MSD) has become expensive supplies at over Rs.10000/- per candy which is higher than the prevailing prices in the world market. See the plight of CCI which has to incur bank interest at 9 percent per annum, besides carrying charges and insurance amounting to roughly 15.5 percent which mills can ill – afford. MNCs with unlimited funds alone can take advantage with their hedging facility. Textile sector cannot have it with about 85 percent of the units in the micro, small and medium category. They have working capital to last just 3-4 months allowed by banks. Margin money works out to 25 percent and 75 percent loan which does not reflect market price.
The industry’s global competitiveness needs to be maintained. It does not have a global brand. Basically the units are convertors – from yarn to fabric and from garments to made ups it. The industry’s asset to turnover ratio is now in single digit from 20 percent a few years ago.
It is to be noted that India’s bank interest is 9-12 percent as against 3-4 percent in competing countries. The global rate is 4 to 5 percent. Because of this textile units cannot service debt. Again knowing that cotton is in short supply in the domestic market, there is no serious move to increase production with induction of new technology with the result the country is dependent on cotton covering nearly 75 percent as against 25 percent share of synthetic fibre. The reverse is the case prevailing globally.
The 11 percent import duty on cotton is continuing dispute demands from industry to roll back – at least during April – October this cotton season. In countries like Brazil, cotton is available at prices lower than those in India. Farmers sell 90 percent of their produce during November – March. The import levy is only helping traders as has been reported earlier in these columns.
The second major input for the industry is man-made fibres (MMFs). The current output is 4.5 bn kgs. That needs to be stepped up by more than three times to reach a level of 14 bn kgs a year by 2030 – a stupendous task. The MMF sector, however, claims it is producing around 5 bn kgs a year. By that time, the business size of the industry is expected to rise from dollar 165 bn to dollar 350 bn and exports from dollar 37 bn to dollar 100 bn.
In the case of cotton as reported earlier the contribution of technology mission is phenomenal. The cotton output was substantially up from 178 lakh bales in 1999 to 398 lakh bales in 2013-14. Also the area under cotton rose sharply from 91 bn hectares to 128 bn hectares during the period.
TMC was in operation, accounting for 30 percent to 38 percent of the global average. After the closure of TMC, productivity dropped below 500 kg per hectare and annual cotton output fell below 300 lakh bales in the absence of any policy intervention by the government.
The cotton BT technology had expired in 2012. New technology is not available. It needs to be ensured that the MSP operations are sufficient to safeguard farmer’s interests and made sure that these operations do not result in unintended support to cotton traders at the cost of the Industry.
If needs no reiteration that polyester is the future engine of growth of the textile industry. At the same time. There cannot be any “monopoly” pricing of domestic products such as viscose and polyester. The MMF sector got anti-dumping duty removed on several raw materials including PTA, Polyester, Viscose etc., and the quality control order (QCO) that requires a BIS licence.
Experts believe that QCO is a non-tariff barrier. What is more even after complying with QCOs such a certificate is not easily forthcoming? The delay in the import of the required quantity of fibres has forced the domestic manufacturers of value added products to “compromise” on the quality and lose business in the long run.
According to Raja Shanmugam, Former President of the Tiruppur Exporters Association (TEA), the QCOs have severely impacted the units in the area. So much, so the units have been forced to approach the two big players in the man made fibres segment for supplies and at a higher price. For the trend in the global market is for T-Shirts with exclusively viscose, polyester or their blends, thus moving away from the manufacture and export of cotton based T-Shirts in the past two years. “We are trying new proportions, he said adding the move stems from high cotton prices“, orders are picking up he further stated.
Textile industry sources want QCOs to be discontinued to make MMF imports hassle free. There is a scheme in the current policy that allows import of MMFs not manufactured at home and where there is a shortge. It is called the Advance Authorisation Scheme (AAS). But only 10 percent of units could benefit with the remaining badly affected. Moreover domestic MMF prices are higher by 15-25 percent than global prices.
The gradual switch over the polyester or viscose assumes great importance looking at the vast scope for increasing consumption of MMF products in the country, since the share of MMF products in the total textile production is considerably lower than that of world average. In fact, the share of MMF products in exports is even lower than that of total textiles production.
Our current reputation in the global market is basically only as an efficient supplier of fibre, yarn and filament fabrics. Our presence in the final products of garments and made-ups is limited and extra efforts are needed to market them.
