One after the other, the economy of these cities, which has been linked to the fortunes of the textile industry, have been affected badly.

Hit by continuing demand recession and increasing costs, Indian textile industry is today steeped in an unprecedented financial crisis with 32 spinning mills and five composite mills, which are involved in weaving besides spinning, having closed down in the last six months.

"Between July 1997 and July 1998, 41 textile mills have closed down, which is roughly one-fifth of the total units that had been shut down till June 1997," says Kashiram Rana, union textiles minister.

"The situation is pretty grim on the textile front. The textile industry is badly mauled by unprecedented prolonged recession," says former Indian Cotton Mills' Federation (ICMF) chairman Deepak Parikh.

Rana says government is waiting for a report from an expert group headed by former textiles secretarySR Sathyam to review the current problems of the industry and come out with new measures to change focus.

The government is also working on a technology upgradation fund with an outlay of Rs 25,000 crore to help textile units modernise.

Loans will be extended at subsidised interest from the fund and it is expected to cost Rs 3,000 crore to the exchequer, the minister says.

ICMF statistics shows that from the 1960s to June 1997,122 spinning units and 92 composite mills have closed down all over the country.

Till July 31 this year, 159 spinning units and 98 composite mills have been shut down.

"Things are going from bad to worse from 1998 onwards and inventories are building up," says former Northern India Textile Mills' Association (Nitma) president Alok B Shriram.

"We are in a desperate situation. Workers live in fear of losing their jobs," says southern India mills association chairman BK Krishnaraj Vanavarayar noting that the present crisis is mainly in the cotton-based industries.

ICMF datashows there has been a consistent decline in the per capita purchase of cotton by the Indian household sector, though there has been a marginal rise in buying of man-made synthetic fibres.

Per capita household purchase of cotton textiles declined to 6.93 metres in 1996 from 7.60 metres in 1993. Overall textile purchases during the period increased to 15.53 metres from 14.47 metres.

"The syndrome of high costs, depressed market conditions and pressure on profits has been plaguing the textile units for the last two years. The situation has got aggravated due to south-east Asian currency turmoil," says Parikh.

Shriram says textile output has decreased by 17 per cent and mills have cut down production by 20 to 25 per cent, while stocks have risen by 40 per cent.

"Hundreds of small spinners have closed down," he says.

"The current situation has brought into sharp focus the phenomenon of over-supply of yarns and fabrics," says Parikh.

During the last three years, 4.33 million spindles have been added inIndia and yarn production has increased by 774 million kg, he says.

But fabric production during the same time surged by 8000 million sq metres.

Parikh says the South-east Asian currency turmoil has in particular led to reduced offtake of cotton yarn and fabrics by the countries in that region, thus leading to oversupply problem in the domestic market.

Exports to the south-east Asian region comprised 45 per cent of India's total 510 million kg cotton yarn exports last year. But since December last, the exports to the region have fallen by 80 per cent.

But the present crisis is mainly due to fall in cotton production to 154 lakh bales (of 170 kg) during 1997-98 season (October-September) against a record 170 lakh bales in 1996-97 and consequent rise in prices, says Vanavarayar.

Statistics made available by South India Small Spinners' Association (Sisspa) show that cotton prices made up 72-78 per cent of yarn input costs against the usual 55-58 per cent cost during 1997-98.

The rise in prices hasled to six per cent cash loss for mills less than 2,200 spindle capacity, says Sisspa chairman V Ramarajan.

This is taking into account the 78 per cent cost for cotton, 14 per cent cost for power, five per cent for wages and 10 per cent for interest and other expenditure, he says.

"High cost structure of Indian economy is hindering competitiveness in Indian industry," says Parikh.

"The whole crisis has its roots in wrong and anomalous government policies, besides an unbearable load of cross-subsidisation burden on the sector," says Vanavarayar suggesting that government has to review incidence of taxation, cross-subsdisation of power tariff and anomaly in excise duty, say Vanavarayar and Shriram.

At present, the industry is hit by financial crunch and banks reluctance to extend loans despite being flush with funds, says Parikh.

While Vanavarayar says government can take steps to fund outstanding term loans, including overdue instalments, Shriram says banks should be asked not to treat asnon-performing assets loans extended to the textile sector.

ICMF says term loans of mills could be rescheduled, lending norms could be relaxed and loans may be considered for offering voluntary retirement schemes (VRS) to workers.

Pointing out to the meeting arranged between the textile industry, finance ministry and financial institutions by his ministry, Rana says financial institutions and banks have agreed to extend a "helping" hand to the textile industry to overcome the crisis.

But these are not enough, says Shriram, who points out at the textile industry being still kept under the purview of Essential Commodities Act.

Spinning mills have also to mandatorily produce 50 per cent of their total production as hank yarn for use by the handloom sector, while poor quality of cotton is also affecting the mills, he says.

Besides, there is also large-scale duty evasion to the tune of Rs 4,000 crore by the unorganised sector, the Nitma official says, adding the evasion has led to dumping of inferiorquality textile goods in the market at a low prices thus affecting the prospects of the organised sector.

Rana says the Sathyam Commission has been given the mandate to review measures taken for tackling sickness in the industry and it could go into these aspects.

As far as cotton quality and production is concerned, the cotton technology mission, for which the clearance has been given by the government, would take care.

"We have already sanctioned Rs 60 crore during the current financial year," says Rana.

Still, modernisation and upgradation will be the key factor for the future, he says.

Parikh and Shriram agree, saying obsolete equipment should be scrapped. Japan and Britain spend a huge sum to scrap redundant capacities, they say.

Rana is hopeful that the current crisis is a temporary phenomenon. The industry, however, sounds a different note.