The much-needed debt restructuring package for the textile industry came at the nick of time to save the units reeling under heavy debt and liquidity crunch. Had the package delayed any further, it would have forced more than 2,500-odd units of small and medium-scale mills across the country to close shop.
The R35,000-crore restructuring package has breathed a new lease of life into the industry and enhanced the repaying capacities of small mills, the production levels of which have fallen drastically in the last three years.
The mills had fallen into a debt trap due to the sudden drop in product prices after two years of runaway rise in raw material costs.
?The package saved several hundreds of SME mills from near-closure due to lack of liquidity and working capital funds,? said S Dinakaran, chairman, Southern India Mills Association (SIMA), which has more than 2,400 units under its belt, with 80% falling in the small and medium categories.
He said the mills have suffered losses of around R15,000 crore in the last two years. ?We expect production to touch 80% and to 90% of capacity gradually as against 30% now as the package provides the mills with necessary liquidity through a moratorium on term-loan repayments and conversion of working capital into term loans of up to five years.?
The Indian textiles and clothing industry is the largest and most labour-intensive industry employing 35 million directly and another 45 million indirectly, particularly women and rural people. The unprecedented and huge price fluctuation of all fibres from October 2010 onwards and the demand recession for all textile products from January 2011 in the global and domestic markets have seriously affected the entire textile value chain and driven the units to huge losses.
According to K Selvaraj, secretary-general, SIMA, ?These mills had incurred heavy losses as the price per candy of cotton fell sharply from R65,000 to R30,000-35,000 within six months after October 2010. Similarly, the spinning mills had lost R90 a kg on yarn prices owing to poor demand from the garment sector on their inventory. These mills have piled up 600 million kg of yarn and 70 bales of cotton as inventory in their backyard due to the sharp price fall.?
The total outstanding debt of the textile industry comes to R155,809 crore, and of this, the debt restructuring proposal has been made for R35,000 crore. Further, the Union finance ministry would recommend to the RBI for a two-year moratorium on term loans, special provision in NPA norms to avoid asset reclassification and conversion of working capital eroded into working capital term loan repayable over a period of three or five years.
The mills have started making marginal profits in the last few months due to a pick-up in demand for yarn, and the package would set them on the revival path.
According to A Sakthivel, president, Tirupur Exporters? Association (TEA), the small and medium knitwear garment exports units and other stakeholder units in Tirupur have been eagerly awaiting for the package since they have been struggling to service their loans.
