Needed, more players in synthetic fibre industry

Absence of sufficient competition in the upstream polyester and viscose segments and inadequate modernisation of weaving and processing facilities are among long-standing issues before India?s textile and clothing industry.

Absence of sufficient competition in the upstream polyester and viscose segments and inadequate modernisation of weaving and processing facilities are among long-standing issues before India?s textile and clothing industry. Even though new investments in this industry have risen impressively in recent years ? R2.07 lakh crore since 1999 under the technology upgradation fund scheme (TUFS) ? wrong policies have been blamed for the current situation where FDI outflows outpace inflows and smaller countries like Bangladesh beat India in export markets. Secretary, textiles, Rita Menon talks about these oddities and the more immediate issue of an apparent crisis in the domestic spinning industry in an interview with Timsy Jaipuria and KG Narendranath. Excerpts:

Considering the demand scenario, the recent fluctuations in the price of cotton and the surge in paraxylene price (that goes into PTA, the raw material for polyester staple fibre and yarn) from costlier crude oil, how do you think the Indian textile and clothing units would fare this fiscal in terms of profitability?

The industry is mostly doing well, but the end of the value chain (the garment sector) seems adversely affected in the past one month or so. Some attribute this to the 10% mandatory excise duty introduced in the Budget for branded garments and made-ups. Additionally, there has been a slowdown in demand for these finished products. The global demand for woven cloth has seen a slowdown. Then, there is also a slowdown in the demand for yarn. So, all in all, the situation is a bit worrying. While there has been very limited off-take of yarn in the domestic market, China also has cut down on their imports of yarn.

There is a view that the imposition of curbs on cotton yarn exports last year had caused spinning mills to pile up inventories and the demand crunch now has forced them to cut production. (Spinning mills in India will remain closed on May 23 to protest against government policies).

For the fiscal 2010-11, it (the quantitative restriction on yarn exports) worked. What made things difficult was the HC judgment (the closure order issued by the Madras High Court in January 2011 to the dyeing and bleaching units in Tirupur on charges that they pollute the Noyyal river). At that time, there was a lot of (domestic) demand for yarn from power looms and the knitwear units. The policy (of yarn export restriction) hinged on that scenario. But there has been a change in that scenario since April, with a slowdown in domestic demand. The autumn orders from domestic units as well as from international chains has slowed down. This has had an (adverse) effect on the off-take of cotton yarn. The Tirupur industry has frozen a considerable part of its capacity. We learn that just about 40% of the dyeing capacity is used right now. The fabrication process continues uninterrupted in Tirupur, but activities like dyeing of the yarn and dyeing of basic knitted material are taking place elsewhere, mostly in places like Surat.

The ministry has set up an advisory board for cotton yarn, like the one for cotton, which makes advance production estimates, calibrate exports etc. Isn?t government regulation on an industrial product like cotton yarn redundant?

I?m afraid I can?t agree with you there. The advisory board is in line with the policy that raw material security for the labour-intensive textile industry must be ensured. It must be noted that with TUFS (which provides interest subsidy for new investments across the textile value chain), the spindleage and sewing capacities have increased considerably. So, it is important that the industry is ready for global demand (which is why yarn exports need to be controlled and the key input is made available to domestic clothing units).

With the optional duty on branded garments being made mandatory now, the textile and clothing industry no longer enjoys any special fiscal sop.

Fiscal incentives are not generally given (to the textile industry); rather, these incentives are being petered out to a great extent. There are restrictions on duty drawback and DEPB benefits for exporters (These are tax remission schemes). So, the only incentive is supply chain management (through policy action). Having a composite view of the industry is very important, and for this, we need a forum.

But if you look at the export basket, cotton yarn is a major export item in itself.

Yes, 20-25% of the world demand for cotton was (met by India) last year. Never before have we reached that level. Conventionally, exports had been in the range of 400-450 million kg; but last year, exports surpassed 700 million kg.

When TUFS was launched in 1999, there was consensus that it ought to focus primarily on creation of new weaving and processing capacities, traditionally the weaker segments of Indian textile industry. But over the years, a large part of the funds have got used up for the spinning sector.

When you talk of TUFS, you have to see it from a historical standpoint. Since 1999, it was used mainly to build up and modernise spinning capacities which is ?the mother of the value chain.? This has helped in building up economies of scale. But the scheme has now been reformed ? with effect from April 2011? to look at the weaving (power loom) segment with renewed focus, with an additional 1-1.5 percentage point interest incentive. It is true that weaving and processing segments haven?t picked up as they should have.

So, with the reformed TUFS, do you see quite a few large integrated weaving-cum-processing units coming up in India?

Some such units have already come up. Apart from the extra interest sops for investments in weaving and processing, we have also hiked the upfront capital subsidy for power looms from R10 lakh to R60 lakh. In this context, the definition of SMEs has been expanded to include those with investments (in equipment) of up to R5 crore. The plan is to augment the number of modern shuttleless looms in the power loom sector which would help increase fabrics output. We are also replicating the same model in the silk sector where there is a gap of 10,000 metric tonnes in domestic output, leading to imports from China. We?re supporting spinning and wheeling units here, with 20% upfront capital subsidy.

Can?t the cost of capacity-building in the textile industry be reduced by encouraging foreign machinery giants to set up manufacturing units here?

We have taken up this matter with the department of heavy industries under whose jurisdiction the machinery industry falls. Although there might not be an instant solution for this, there is already good news on this front with machinery companies like Toyoda having expanded their capacities here in India. And these firms are also allied to the government?s skill development initiative which is going to increase the demand for weaving and sewing equipment under the TUFS.

Cotton prices have now come down from a historical high of R62,000 per candy (for Shankar-6 variety) in March to R44,000. Apart from speculation in the global and domestic markets, export of some 55 lakh bales of high quality cotton earlier this season also contributed to the price spiral.

The cotton prices have now been corrected as the amount of cotton coming to the market has now reduced substantially. (The current season would be over by September). Companies are now left with mostly Andhra Pradesh cotton as new arrivals from other areas are slowing to a trickle. However, raw material costs for Indian textile industry would likely come down now as China is not buying cotton in large quantities and even the US is not very active (in the market). Global cotton prices have corrected and the domestic prices are still 40 cents below the international prices.

The problem (for spinning mills) stems from the fall in domestic demand, but one is hopeful of a correction (in yarn demand) in the next 15 days or so.

Indian textile industry continues to be predominantly cotton-based while China is very strong in synthetic textiles as well. Policies that allows import parity pricing for the raw materials of synthetic textiles (PSF, PFY, VSF etc.) have virtually prevented the entry of more players in the upstream industry and inflated the costs of downstream industries.

The (upstream) synthetic textile industry is ruled by a very limited number of players and we have not seen any new players or investors coming in that segment for several years. This has been hampering the growth of the country?s synthetic textiles industry, while China has a very competitive industry which helps it to be a formidable player in the global market for mass-consumption textiles and garments. We need to focus on modernisation of the synthetic sector.

Is the ministry taking steps to encourage the entry of more players?

Yes, our fibre policy is meant for this too. New players must come in and they must be able to reduce costs and be more competitive in the value chain. Other ministries too have a role to play here.

The ministry of commerce has apparently raised some issues over the fibre policy. What are its concerns?

That (commerce ministry?s concern) was only about cotton. We will be formulating a policy conducive for broadening of the fibre base for the textile industry. We want to ensure raw material security for the industry. There was an advocacy from the commerce ministry for freer exports of cotton while the textiles ministry has a laid-out policy that domestic demand (for cotton) should be met first. While the commerce ministry is batting for more cotton exports, our ministry is saying that exports should not hurt the domestic industry.

What about FDI in the textile industry?

There is a lot of it coming in and correspondingly, Indian textile majors are also setting up units abroad. There is more of an outflow (of FDI) than the inflow. And the outflow is across all segments of the industry and are directed at countries like Bangladesh, Czech Republic, Vietnam and Indonesia which are competitive in certain segments of the value chain. To make the domestic industry more competitive and thereby encourage more investments here, we have to necessarily make (policy) interventions for the textile and the garment sectors. We could consider subsidies like what Bangladesh and some other countries give to their domestic industry to enable them to grow and remain globally competitive. We?re in the process of making recommendations on these aspects as our inputs are being sought for the 12th Five Year Plan. We are hopeful that the fibre policy that incorporates certain features that are relevant in this context would be an element of the Plan document.

What are the steps being taken to give a boost to technical textiles sector, where the growth potential is estimated to be very high?

Technical textile industry has seen 15-18% growth rate over the last two-three years and the aim is to push growth to 25% this fiscal. Some 3,500 SMEs have signed up for the technical textiles ventures. This would mean additional output of Rs 750-800 crore this year. The regulatory framework is being put in place.

Diversification of markets is integral to keeping the export growth momentum.

We are concentrating on the Middle East and China for handicrafts and carpets. Austria and Vienna have shown good response to recent Made in India shows there. There is also an attempt to make inroads into the Eastern European markets like Slovakia, Slovenia etc. We are going to have a major show in London soon. It may, however, be noted that the EU and US continue to be the largest markets for Indian exporters of textiles and garments.

There is a plan for the listing the National Textile Corporation (NTC) which has made a dramatic turnaround and is now debt-free.

NTC?s exports have seen a surge of 145% in rupee terms, thanks to the revival package for the company. We do have plans to list the company. The listing will probably be in the last quarter of the financial year 2012-13.

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First published on: 20-05-2011 at 20:55 IST