The textile industry in Tamil Nadu is caught between the global meltdown and an unprecedented power cut of 6-8 hours everyday.
The industry in the state is, in fact, running the risk of defaulting on payments to the commercial banks that had extended over Rs 25,000 crore to the sector under the Textile Upgradation Fund Scheme (TUFS). Leading textile bodies have already urged the government to give the cash-strapped firms some succor by announcing a moratorium on repayments of loans till the fortunes of the sector revive.
Under TUFS, up to March 31, 2008 the banks had given about Rs 45,000 crore to the textile mills in the country. Of this, at least Rs 30,000 crore have been availed of by the textile units in Tamil Nadu, mostly by the spinning mills, which accounts for 50% of the spinning capacity and 60% of yarn exports from the country. It is most likely now that Rs 25,000 crore extended to the spinning sector in the state under TUFS becoming NPAs, as mills are working at about only 50% of their installed capacity, with no viable solution in sight, Manikam Ramaswami, chairman of Loyal Textile Mills, who also heads the Confederation of Indian Industry (CII), Tamil Nadu State Council, told FE.
The South India Textile Research Association (SITRA) has estimated that the spinning mills would be able to break-even, only if they are working at a 85% capacity utilisation. With about 50% to 55% capacity utilisation, mills would be hard pressed to service their debts. The Southern India Mills Association (SIMA) has been asking for a minimum of two-year moratorium on loan repayment. Meanwhile, SIMA sources said Tamil Nadu mills have to receive, the interest subsidy of about Rs 800 crore from the Centre for the TUFS loans. ?If the mills were to get this, there would have been some relief from the current liquidity crunch,? they said.
Interestingly, when the Tamil Nadu textile mills are reeling under credit crunch, in a circular earlier this year, the Union textile ministry said units that have loans sanctioned under TUFS before March 2007 and have not taken the first disbursement should do so before September 30, 2008, according to a recent circular from the ministry of textiles.
In case the units do not take the first disbursement by the end of September, such cases will be cancelled by the lending agencies, the circular had said.
However, as feared by many, the current crisis may not lead to large-scale labour retrenchment in textile sector, industry sources in Coimbatore and Tirupur region said. There had already been a labour shortage in the textile sector. Large number of migrant labourers from other states were filling the gap. Most of them have gone back for Diwali and were not likely to return, they added. The local employees are retained with less working hours and less number of working days in a week, A Sakthivel, president of Tirupur Exporters? Association (TEA) said.
He said there had been a 10% fall in export orders compared to last year. ?We wish the slow down in the EU and US markets were short-term and there was a fast recovery?, he added.
Industry experts like Ramaswami believe that the current crisis in the western markets was only a passing phase. ?It is, in fact, an opportunity for Indian industry as its fundamentals are still strong. When the western markets emerge from the current meltdown they will find India a very competitive source of products and services. Depreciation of the rupee and the capability of the Indian manufacturing sector would be the main advantages, which may not be there for China to rely on,? he said.
Tamil Nadu may not be able to make full use of that new market owing to its power shortage that would last for some more yeas. It was power crisis, more than the global slow down, that has been crippling the industries in the state, Ramaswami said.
Observers also fear that Tamil Nadu is likely to lose fresh investments in the sector to power surplus states like Andhra Pradesh. Already some mills have initiated steps to set up units for doing power intensive works such as weaving in the neighbouring state.
