Tamil Nadu’s textile entrepreneurs are claiming a severe shortage of working capital with rising manufacturing costs and customers taking more time to pay, which they say is pushing their businesses into negative performance cycles.
The Indian Texpreneurs Federation (ITF), a grouping of 550 mills and garment makers in the country, submitted a memorandum to Textile Minister Smriti Irani recently, highlighting the results of surveys into the reasons for the capital shortage and analytics about recent business performance of yarn spinners and readymade garmenting units in the State.
Volatility in cotton prices, the Eurozone crisis and extended credit period due to a liquidity crisis in the system counted among reasons highlighted for the shortage of working capital. About 300 entrepreneurs were surveyed on capital bottlenecks in their businesses and what would be required to turn around their businesses.
“Business demands more money these days, and entrepreneurs have had to extend their credit limit. On one side, working capital from banks has eroded and (on the other) the market is demanding more credit. Unable to work in this system, a large percentage of units facing higher manufacturing costs in terms of raw material, energy, and lower price realisation of their products are in negative cycle now,” ITF convener Prabhu Damodharan said.
In the survey, 85 percent of the respondents said they were impacted by liquidity issues, while 45 percent responded that their working capital shortage could be qualified as “severe to very severe”. The Ministry has sought a larger survey with inputs from spinning and readymade garment sectors across the country for further action, Damodharan said.
Tamil Nadu’s textile clusters are populated by small factories running on bank credit. Over the years, the number of days before a bank can declare a loan asset as non-performing has come down. “It used to be four quarters to declare NPA, then got reduced to 180 days, and now it is 90 days. In a business scenario where our credit lines have spread, these norms are impacting businesses, especially small businesses,” said a veteran textile mill owner on condition of anonymity. A mail sent to the Reserve Bank of India on asset classification rules remained unanswered recently.
The working capital shortage is felt at a time exporters of man-made fibre apparel are trying to grow market share in the West, particularly in the American market. According to data from the ITF, Indian exports of products made of man-made fibre to the US totalled rs. 7,800 cr in the January-September 2019 period. The addressable market is estimated at rs. 2.9 lakh cr.
