Hyderabad, Feb 11 : The spinning industry majors are heading for a crisis inAndhra Pradesh. Apart from governmental indifference, the mushrooming ofsmall spinning mills in just three years has not only hit the industry'sbottomline but has paved the way for the closure of many mills and anincrease in BIFR cases.Besides problems such as over-capacity, obsolete machinery, high cost ofpower and capital, improper fiscal policies and insufficient infrastructure,the government's decision to exempt small spinning mills from excise dutyfurther sounds the deathknell for the industry, AP Spinning MillsAssociation president CK Rao told The Financial Express.
According to him, Andhra Pradesh is an ideal place for the growth of textileindustry. Out of 157 lakh bales of cotton produced in the country, 23 lakhbales are produced in the state (in 11 lakh hectares). But the rift betweenthe organised and the unorganised mills has increased thanks to the hikingof excise duty exemption level of mills from Rs 50 lakh to Rs 1 crore, hesaid.
"With the imminent low-cost imports under the WTO regime, particularly fromChina, there is no end in sight to the present situation unless thegovernment takes immeediate action," Mr Rao said.
He said the mills would find it difficult to achieve the targets set by theTextile Policy 2000, announced in November, with the removal of quotas fortextile products and the preferential trading arrangements being establishedin principal markets.
Notwithstaning the formation of Rs 25,000-crore Technology Upgradation Fund(TUF) in April 1999, the scheme has not really taken off. As against thetargeted annual disbursments of Rs 5,000 crore, the acutal disbursed amountfor the first 15-month period ended June 2000, was just Rs 1,002 crore,mainly due to the stringent norms on financial performance and otheraspects, which prevent mills from taking advantage of the scheme, theindustry sources alleged.
Besides, the industry is suffering from infrastructural constraints such asfewer ports and delays in ports and an inefficient inland transportationsystem, they point out. Power and capital interest rates are very importantin the spinning industry as they form 35 per cent of the conversion costs.It is quite high in India compared with other countries, the sources said.
The spinning industry, which contributes over 40 per cent of the totaltextile exports of $15.5 billion, has been witnessing closure of mills at anaverage of one mill a week, thanks to the exponential growth in the numberof mills in the unorganised sector.
It is feared that closed mills number more than 400. Several NTC andcooperative mills, which are running partially, are expected to close downany moment.
To add to the worry of the ailing industry there are many unsettled BIFRcases stretching from more than one year to five years even as the list ofcompanies continue to pile up at BIFR, these sources said.
As on April 30, 2000, 445 cases were registered with BIFR and it is expectedto touch the 500-mark by the end of current fiscal, they say.There are many other issues which plague the industry. A list follows:Excise duty on yarn: With over 400 mills having closed down since 1992, itis imperative for survival that the excise duty be brought down to 4 percent from 9.2 per cent on cotton yarn and 18.4 per cent on synthetic andblended yarn. This will help the government curtail evasion of duties.
Excise exemption to SSI units: The industry wants the exemption to bewithdrawn immediately as the extended tax exemption limit to spinning millswith a turnover of Rs 1 crore has seen the mushoorming of over 1,000registered small mills and unregistered 300 mills, ``which has crippled theorganised sector''. It has also the paved way for several medium units tosplit into small units.
Hank yarn obligation: The stipulation that 50 per cent of the cotton yarnproduced has to be in hank form should go forthwith. With the increase inspindleage and productivity, the HY production has increased substantiallyand in excess of demand, claims the industry.
Knitting industry: For the growth of the industry and increase in exports,the industry wants knitting to be removed from the SSI sector.Essential Commodities Act: When there is a surplus of textiles available inthe country, it is not necessary to to keep the industry under the Act, theyfeel.
As per the policies of the Centre, the taxes should be uniform in all thestates to ensure better performance.And as for the TUF, despite some relaxations, the tardy progress indicatesthat the scheme will have to recognise the growing sickness and shouldliberalise substantially.As for the China factor, with the advantage of low interest rates (varyingfrom 6.13 to 6.53 per cent), low power rates and continuous power supply (Rs4.67 per kw/h during peak hours to Rs 3.38 during non-peak hours), ahire-and-fire labour policy, a clear exit policy and continuous technologyupgradation, China could flood the Indian market with low-cost imports.The sources revealed that industry representitives had alredy met TextileMinister Kanshiram Rana and Finance Minister Yashwant Sinha on thesituation. With the massive earthquake in Gujarat and the Prime Minister ABVajpayee's hints at `quake taxes', it is seen that the government may ignorethe industry majors' problems during this Budget too.
Copyright © 2001 Indian Express Newspapers (Bombay) Ltd.
