Jute industry in trouble as 33 mills sell at higher prices

The beleaguered jute industry in the country has courted fresh controversy with the Government of India identifying 33 defaulting mills who have allegedly sold 41730 bales of their B-Twill jute bags at higher market prices while failing to keep their supply commitment to the Punjab government in December last year.

Punjab is the biggest indenter of B Twill jute bags in the country, accounting for over 65 per cent of the sacking market of the jute industry, the size of which is estimated at about Rs 6000 crore. The states of Haryana, Chattisgarh, Uttar Pradesh, Bihar and Orissa are the other leading indenters of B Twill jute bags.

“The government is likely to initiate strong action against the defaulting jute mills if the pending supplies of around 41730 bales of B Twill bags are not made to Punjab, at old prices of November and December 2009, by July 7 this year. The government may even go to the extent of stopping future orders and cancel existing ones if these mills fail to comply”, said a source familiar with the development.The defaulting mills will have to cope up with a loss of Rs 12000 per tonne of jute bag compared to current prices, if they comply with the government directive. Industry sources said, some jute mills might go for compliance in order to avoid the wrath and punitive action of the Government.

With the Government mulling to crack the whip on the defaulting jute mills, the Indian Jute Mills Association (IJMA), apex body of the industry, has found itself in a tight spot.

More than half of the mills were allegedly involved in the deal. These mills are now contemplating to take legal recourse to contest the government's move.According to informed sources, the government suspects that the ‘rogue’ units not only sold their products in the open markets at higher prices in December 2009 but also managed to enter into clandestine deals to get fresh orders in the future market at new and higher prices after the 61-day strike came to a close on February 14, 2010.

What soured matters was the non- implementation of a decision taken at the highest levels of the Union textile and food ministry in March 2010 that the identified defaulting mills will have to supply the left over of 41730 bales of B Twill bags to Punjab government by April 30, 2010 at prices that prevailed in November-December. Neither the mills nor IJMA took cognizance of the decision as they might have been assured by the local Directorate General of Supplies and Disposal (DGSD) that the pending order of the Punjab government has been cancelled and there was no need for supplies.

The default came to light with the Punjab government taking up the issue with the DGSD at the national level. The Punjab government was able to convince the Union commerce ministry that the old order was not cancelled.

The Punjab government has claimed that funds to the tune of Rs 68 crore have been locked up with the DGSD. Later, a letter from the Union Commerce Minister Anand Sharma favoring Punjab’s stand against the earlier decision of DGSD of cancelling the order of 41730 bales turned the tables on the jute industry and the local DGSD officials based out of Kolkata.