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| Spinning trouble |
| Komal Amit Gera / Jul 30, 2010, 23:43 IST |
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Handicapped by power shortages, Punjab’s textile mills are investing in other states
Punjab’s textile industry, the largest employer in the state after agriculture, is still financially troubled, while other industry clusters are celebrating the start of a revival after the downturn.
Ashish Bagrodia, president of Nitma (North India Textile Millers Association) and director of Winsome Textiles, says suspension of registration of export contracts of cotton and imposition of a duty of Rs 2,500 per tonne was a step in the right direction and in line with the spinning industry’s demand that it should be assured of adequate raw cotton at reasonable prices. However, it came when the cotton season had drawn to a close and the best produce had already been exported to Bangladesh, Pakistan and China. The government’s suspension of the 7.67 per cent DEPB benefit on cotton yarn exports and withdrawal of the duty drawback on cotton yarn sent shock waves among spinners, since they had already made export commitments, according to Bagrodia.
The global recession has affected the textile industry the most and it continues to be under a big debt burden. It wants the TUF (Textile Upgradation Fund) guidelines to be suitably modified to allow repayment of term loans within 12 years, instead of the present 10 years (including two years’ moratorium).
However, the government has temporarily suspended the sanction of fresh projects under the TUF Scheme, pending an increase in the allocation for the scheme in the 11th Five Year Plan.
Nitma, said Bagrodia, had asked the finance minister to reduce the interest rate on working capital for cotton to 7 per cent with a promoter’s margin of 10 per cent on stocks for a period of nine months, from the present three to four months. Abolition of excise duty on furnace oil/diesel used for captive power generation and excise duty on locally procured capital goods under EPCG licence (this is revenue-neutral, since at present it is refunded after full payment) was also on their pre-budget wish list submitted to the finance minister.
Nitma regional committee chairman Hardyal S Cheema says that, in addition, over the last three years labour costs had almost trebled due to the National Rural Employment Guarantee Scheme. Moreover, mills face severe power shortages along with increased power tariffs, which has affected production costs and yarn availability.
Cheema said that after the recent hike in electricity duty to 13 per cent, power in Punjab, at Rs 5.28 per unit, is the second most expensive in India (after Gujarat, where it is Rs 5.65 per unit). This, coupled with the recent increase in the cost of diesel, would take its toll on textile manufacturers, he said. (Power accounts for 8-10 per cent of the cost of yarn manufacturing.) Power supply in Punjab is erratic and about 30-40 per cent of the power used to run manufacturing units is captive-generated.
The added costs will hurt spinning units, considering that about 16-20 million units of power are normally consumed by a spinning mill with a capacity of 25,000 spindles. Non-availability of power and the high tariff has undermined the expansion plans of many existing players in Punjab’s textile cluster.
In the past few years Punjab-based textile companies have invested almost Rs 5,000 crore in other parts of India. The exodus of industry to Himachal Pradesh was also witnessed during the tax holiday announced for the hill states in 2003. Prominent among these is the Ludhiana-based Vardhman Group, which has invested Rs 1,800 crore at Baddi and Paonta Sahib. It set up 245,000 spindles, fabric weaving and finishing units with 264 modern looms and a yarn and dyeing plant.
Of late Madhya Pradesh has become an attractive destination for textile companies due to abundant labour, cheap power (Rs 3.80 per unit) and proximity to a port.
# The Trident Group set up 50,000 spindles at Bhudni (in MP) at an initial investment of Rs 150 crore and a final investment of Rs 365 crore.
# Vardhman Group has invested Rs 1,500 crore in a fabric manufacturing unit and spindles for yarn manufacturing at Bhudni, Satlapur and Mandideep, all in Madhya Pradesh.
# SEL has announced plans to invest Rs 800 crore in a spinning unit with 190,000 spindles near Bhopal.
Such investments will both restrict the employment potential in Punjab and erode the business prospects of ancillary units.
S P Oswal, chairman of the Vardhman Group, says Punjab’s textile industry has been languishing due to the state government’s callousness. Had the right kind of infrastructure been provided in Punjab the industry would have consolidated itself, he notes, adding that it has been surpassed by new hubs like Tirupur in Tamil Nadu.
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