Signs of the spinning sector coming under strain were visible in 2007-2008 ifself, which is approximately 16 years ago. At that time, cotton was removed from the Essential Commodities Act. Not only that, the government slapped 10 percent customs duty, 4 percent additional customs duty, 3 percent education cess, and 1 percent and 5 percent on export benefits on cotton.
Three years later, export benefits for cotton yarn were removed, exports restricted and later banned from December 2010 to March 2011. The damage had been done – exports were severely affected and several exporting mills permanently closed and the working capital of the mills got eroded. Urgent steps are therefore required to restore the financial stability of the mills to sustain global competitiveness of the textile and clothing industry to stave off the situation. Cotton yarn exports were restricted in 2010-11 to 720 mn kgs against the potential of over 1000 mn kg the industry had. Since no quota was available for shipments beyond January 15, 2011. There were practically no exports for around two and a half months. The government had withdrawn refund of taxes on Cotton Yarn through Duty Entitlement Passbook Scheme (DEPB) and duty draw back from April 2010. With declining demand from January 2011 and a ban on exports, “about 500 mn kg of unsold yarn got stuck with the mills. Following the crash in cotton prices, yarn prices followed suit in global and domestic markets.
“The decline was over Rs.90 per kg, leading to a loss of about Rs.45.00 cr to the mills on devaluation of cotton yarn in stock, reveals an assessment report prepared by BOB Capital Markets Ltd. The study had been commissioned by the Union Textile Ministry. If further says that export especially those of cotton textiles, have taken a severe beating in 2022-23”.
Further High volatility in cotton prices had affected the profitability of the mills. The prime season for this is the import levy on cotton. The levy for from protecting the interest of farmers has severely affected the highly labour and capital intensive segment. The poor market demand with high local prices has severely impacted the spinning operations.
According to all India Spinning Mills Associations barring ready-made garments (cotton), all other items have shown a sharp decline in 2022–23 compared to 2021–22. The sharp fall is in respect of cotton yarn by 50 percent from $5498 mn to $2752 mn in this period. China was earlier the big market for this yarn. Raw cotton, including waste exports also came down by 72 percent, from $2816 mn to $781 mn and of textiles and clothing by 18 percent to $35357 mn from $42916 mn. Readymade garments (cotton) exports rose by just three percent from $9040 mn to $9280 mn. Exports of all other textile and clothing items also dropped by 9 percent.
With the current price of cotton candy at Rs.67.340, the price of 40S RL yarn is at Rs.306 per kg and clean cotton cost it is 213 per kg 70 percent yarn S.VENKITACHALAM is a senior economic journalist with more than 40 years of experience, covering Industry, Commerce & Textile Ministries. In this article the author discusses about the with high cotton cost, textile ecports decline. “The decline was over Rs.90 per kg, leading to a loss of aboutRs.45.00 cr to the mills on devaluation of cotton yarn in stock, reveals an assessment report prepared by BOB Capital Markets Ltd. The study had been commissioned by the Union Textile Ministry. If further says that export especially those of cotton textiles, have taken a severe beating in 2022-23” prices against SITRA norms of 60 percent leading to a loss of around 9 percent cotton price is now ruling at Rs.55,300 per candy, down from Rs. 63,000 per candy is April 2023. Spinning mills are mostly under stress due to wafer-thin margin of 3 – 6 percent. Also there is no parity between the raw material price and the yarn selling price. The segment performed will what there was parity between the two factors.
Disruptions in raw material supplies have affected the spinning segment’s performance. With a decline in cotton production from 398 lakh bales to 320– 330 lakh bales, India has become a deficit country in terms of net exports of cotton. The cotton requirement is over 400 lakh bales to meet 360 lakh bales for home consumption and the remaining for exports. The position with respect to man-made raw materials is no exception. MMF quality control orders (QCOs) stalled imports of key materials like viscose staple fibre and polyester staple fibre, including specialty fibres (functional finish fibres, bamboo, etc.) not produced in the country. Even after the removal of anti-dumping duties on these materials, QCOs enabled indigenous fibre manufacturers to sell MMFs at higher prices.
The performance of the spinning sector also came under stress with capacity under utilisation. The mills particularly, in Tamil Nadu are operating at less than 60 percent capacity utilisation due to poor global market because of several reasons – Russia – Ukraine war, recession in major global markets, customer’s preference for traditional textile to recycled textiles, high raw material cost and high volatality in raw material cost. As per the norms of the Textile Research Associations particularly SITRA, a spinning mill needs to work at 95 percent capacity utilisation to make 3-6 margin and at 90 percent to avoid losses.
Higher MMF prices affected the entire textile value chain – fabrics, garments and made-ups. Imports of finished goods looming large resulted in reduced demand for yarn. There is additional challenge face the Tamil Nadu spinning mills. Take raw materials.
Against the requirement of 110-120 lakh bales, cotton production is only 5 to 10 lakhs bales a year. The mills source 95 percent of this raw material from up country markets. Gujarat and Maharashtra and sells it to the same markets. For MMF, the segment is dependent on Gujarat, Maharashtra and imports. MMF is the future growth engine. Besides, 70 percent of VSF produced in the country is consumed by Tamil Nadu. With rising transport costs, mills, the Associations say spend Rs.3 toRs.7 percent kg for sourcing fibres and the same amount for selling yarns and fabrics. High dependence on migrant labour and false media campaigns disrupt the spinning segment.
There is also technological obsolescence in the spinning sector. There are 19mn active spindles in Tamil Nadu, of which more than 12 mn spindles are above 15 years old (over 60 percent). Cotton growing states like Maharashtra, Gujarat and Madhya Pradesh provide huge incentives to new capacity created in their states (over 80 percent). The Tamil Nadu segment which has over 45 percent capacity has become financially unviable.
The steep increase in power tariffs in Tamil Nadu. The tariffs range from Rs.7.60 per unit (during 2021-22) to Rs.8.65 per unit (during 2022-23) also has negatively impacted the spinning mills in the state. No annual banking facility is available for wind mills of 20/25 years old. Further, network charges levied on roof top solar installations are also affecting the mills. The associations opine that the state can regain competitiveness only through wind power with annual banking facility and solar power without network and other charges.
The textile industry accounts for 14 percent of global output and also is the largest exporter with a 5.2 percent global share and 25 percent share in cotton yarn exports. A largest producer and second largest consumer and exporter of cotton, it is also the largest producer of jute and contributes two percent to GDP and 14 percent to industrial production, besides earning foreign exchange of over dollar 40 billion. It is the second largest employment provider (21 percent) next to agriculture and ensures inclusive growth. The spinning sector is fully modernised and produces the finest quality of yarn in the world and contributes to 25 to 27 percent of global yarn exports.
The textile industry is set to reach dollar 350 bn by 2030 – domestic $200 bn and exports dollar 150 billion. With China’s exports coming under strain following industrialisation, may provide opportunities for India
