As much as 40% of the yarn-producing machines in K Sundaresan’s spinning unit in Coimbatore lie idle, and a quarter of his staff, of nearly 300 workers, has been laid off in a telling picture of the situation the country’s once-blooming textile sector has been facing this year.
Volatility in raw material prices and expensive as well as limited credit have strained mills’ finances, while the economic crisis in the US and the EU, which together account for 65% of India?s supplies, has hit demand, reinforcing fears that the overall textile export growth could be the lowest in five years and the shipment target of $40.59 billion for this fiscal is all set to be missed.
Worse still, an acute liquidity crunch and uncertainty about debt-restructuring of hundreds of mills have drastically reduced their ability to stock up despite low cotton prices.
This has forced the government to stack up large volumes of reserves to prevent distress sales by farmers since November, in a stark contrast to the robust demand for cotton in March when agriculture minister Sharad Pawar severely criticized the textile ministry for banning cotton exports to improve supplies for textile mills.
The overall textile exports, including the shipment of handicrafts, dropped 5.8% in the first half of the current fiscal, representing close to one-third of the full-year target of $40.59 billion, according to the provisional data by the Directorate General of Commercial Intelligence and Statistics. The exports declined to $14.69 billion during the April-September period, compared with $15.59 billion a year earlier, showed the data.
?You can see trucks delivering cotton to garment units in Tirupur (textile hub in Tamilnadu) are half-empty, and workers, whose shifts have been eliminated or shortened, sitting idly on the stoops of the plants. Many mill owners, especially the small and medium ones like us, are facing huge losses,? said Sundaresan, who was in New Delhi recently.
Official and industry sources say the lofty export target for 2012-13 seems all but missed.
?There is a slowdown in the US and much of Europe, which has resulted in a dip in supplies across most segments. We expect the exports to be in the range of $35 billion to $36 billion in this fiscal,? said a senior ministry official.
The country?s overall textile exports hit a record $34 billion last year, buoyed by elevated prices following all-time-high raw material costs.
Significantly, the share of the textile sector, the country?s largest employer after agriculture, in the overall exports has been declining almost steadily over the years, from nearly 28% during the beginning of the ninth Plan period in 1997-98 to just less than 11% in the final year of the 11th Plan period.
Foreign direct investment in textiles has also remained sluggish over the past five years.
?Demand seems to be returning now after a tepid start in the first half of this fiscal and may finally show a marginal uptick in full-year exports. But the target will most certainly be missed,? said Confederation of Indian Textile Industry secretary-general DK Nair.
Indian textile industry despite its diversified raw material base (front natural to manmade fibres), has conventionally suffered from irrational policies. Though some of these have been corrected, smaller countries such as Bangladesh, Vietnam and Cambodia have made major headway in world markets, even as India’s performance is far below potential. In fact, over the last few years, a few Indian textile/garment companies have even shifted their base to countries like Bangladesh to benefit from flexible labour norms and reduced costs.
The textile ministry had raised the export target for 2012-13 from $38.31 billion set earlier this fiscal.
Expectations of higher exports intensified after the government announced the restructuring of loans worth R35,000 crore to bail out cash-starved textile mills that had fallen into a debt trap due to a sudden slump in product prices after two successive years of relentless rise in raw material costs.
The domestic currency also depreciated by around 15% from a year before, making exports more remunerative.
Moreover, under the foreign trade policy announced earlier this fiscal, the commerce ministry extended the zero-duty Export Promotion Credit Guarantee scheme by a year to March 31, 2013.
In the case of the apparel sector, the market-linked focus product scheme was extended until the end of the current fiscal for exports to the US and the EU.
However, demand from overseas slowed in the first half of the fiscal as the EU struggled to tide over the debt crisis while the US was staring at a budget crisis.
Moreover, the textile debt restructuring plan is yet to be implemented effectively to yield desired results, as the central bank has remained reluctant to tweak prudential norms to allow a second restructuring of loans to most textile mills without declaring these bad loans.
Debt of most of the mills had already been recast once during the financial crisis in 2008-09.
However, the government has directed individual banks to look into the issue of debt restructuring of around 300 mills in the first phase on a case-by-case basis at their end.
The total outstanding debt of the textiles sector is R155,000 crore.
Mills? inability to purchase in bulk and poor export demand for cotton has forced the Centre to procure cotton stocks worth around R2,000 crore so far in what could be the biggest purchase drive in four years.
Moreover, in a recent meeting, a panel of ministers decided to cap the cotton export registration at seven million bales. The government is expected to review domestic supplies before allowing more shipments.