By Sreekumar Raghavan
COIMBATORE, INDIA (Commodity Online): A weak global economy, volatility in cotton prices and credit crisis within the domestic market played havoc with the textile industry in 2011-12—one of the leading provider of employment and foreign exchange in India.
The Confederation of Indian Textile Industry (CITI) in its Q3, 2011-12 review of textiles sector pointed out that due to dull downstream demand and high costs of production, textiles industry has little incentive to boost production, with many preferring to idle operations until a more favorable environment returns. "With downward production trend in all downstream segments of textile sector including apparel since April 2011 month-after-month persistently; we expect full-year textile output across India to contract in 2011-12."
“The highest price volatility in cotton prices in the past 150 years followed by a collapse in April, 2011, had immediate repercussions in the domestic market. Cotton yarn production is down by 15% and fabric production is down by 19 % in the April – October 2011 period over the previous year. Textile Mills faced with high priced cotton inventories could not pass through the prices into yarn and fabrics as the price decline came suddenly in the month of April 2011. This led to a slowdown in production and reduced utilization capacity,” Panabaaka Lakshmi, Minister of State for Textiles informed Parliament on Wednesday.
Indian banks canΆt be blamed for extending credit as RBI tightened norms for lending to curb inflation. The banks have a sizeable exposure to textiles sector evaluated at Rs 146885 crore, according to MD Mallya, Chairman of Bank of Baroda and also Chairman of the committee appointed by India Government to examine textile restructuring proposals.
The Committee recommended a restructuring package that sought relaxation in prudential norms by RBI for banks to restructure working capital and term loans.
The proposal was submitted to and examined by Reserve Bank of India (RBI) which advised that banks are free to restructure any account, whether standard, substandard or doubtful as also more than once, provided the financial viability is established and there is a reasonable certainty of repayment as per the terms of the restructuring package but clarified that it was not in favour of relaxing its prudential guidelines on restructuring of advances, provisioning norms, risk weights etc for any specific sector or industry.
The Union Budget for 2012-13 was not entirely appealing to crisis-stricken textiles industry either as it presented a mixed bag – abolition of customs duty on shuttleless looms were welcomed but not the increase in service tax from 10 to 12 percent and there was no separate announcement on Technology Upgradation Fund Scheme to be extended to 12 th Plan, V Arumugam, Chairman, CITI said.
India Government's ad hoc policies with respect to export of cotton has also invited the ire of textile industry and cotton growers. The latest decision to remove restrictions on export of cotton has been opposed by the spinning industry with the Southern India Mills Association (SIMA) declaring that the move would suffocate the crisis stricken industry.
"The cotton export policy and the current cotton stock position in the country has come as a rude shock for the industry. Around 115 lakh bales of cotton has been allowed for export during the current cotton season as against the Cotton Advisory Board (CAB) decision of 84 lakh bales, leaving a closing stock of 25 lakh bales.," according to S Dinakaran, Chairman of SIMA.
