The two companies together had unsold stocks worth 12,000 tonnes (equivalent to 28 days of production) till November 1998. The industry's production during April-December is estimated at about 137,000 tonnes, much below the capacity of 305,000 tonnes. It is likely to end the financial year with a production of 183,000 tonnes, slightly lower than last year's figure of 188,000 tonnes, industry sources said.

For improving capacity utilisation, VSF players have been giving large discounts to promote both the domestic and export markets. Grasim Industries is believed to be offering a discount of Rs 17 per kg to combat the threat from cheaper imports, the sources said.

While increasing imports have beenaffecting domestic VSF demand to a large extent, preference for polyester-staple fibre (PSF) owing to relatively lower prices has also contributed to the recent glut. PSF prices are ruling at Rs 41 per kg, against the higher VSF prices of Rs 61 per kg.

Though the excise duty for all man-made fibres is uniform at 20.7 per cent, incidence of duty for VSF manufacturers is much greater owing to comparatively higher prices. Basic import duty for VSF is only 25 per cent, against a 30 per cent duty for PSF.

Unable to cope with recession, domestic industry players are lobbying actively for rationalisng the excise and customs duty structures. They feel that VSF should be taken out of the bracket of synthetics, as it is a cellulosic fibre and a substitute of cotton. They have demanded that VSF be brought under the ambit of "cellulosics" along with cotton while determining the duty structure.

The general slowdown in the the economy has severely affected the overall demand in the textile sector, with 257 millsclosing shop till June 1998.

INSIGHT

Price difference cannot explain poor offtake: Going by the difference in the selling prices of VSF and PSF, the excise rate of 20.7 per cent applicable to both the fibres will add Rs 4 to the selling price of VSF compared to PSF. This difference alone, however, cannot explain the poor offtake of VSF from the market.

In fact, considering the discount of Rs 17 per kg offered by Grasim, the selling price of VSF is close to that of PSF. Hence, the poor offtake of VSF seems to suggest that the user industry has been by and large shifting to using PSF, which is cheaper and more versatile than VSF. The hypothesis of the shift from VSF to PSF can be checked in two ways. First, the growth in consumption of PSF has been more than 15 per cent per annum and that of VSF less than one-and-a-half per cent. Secondly, investments for new capacities across the world have been far more in polyester derivatives compared to wood-based derivatives.