Ludhiana textile firms in a spot

The recent hike in minimum support price (MSP) for cotton, announced by the Centre, has not been received well by the textile firms in Ludhiana. They are a worried lot.

The Centre had recently hiked the MSP of cotton for the year 2008-09.

While the support price of long staple cotton was hiked to Rs 3,000 per quintal for 2008-09 from Rs 2,030 in the previous year, the support price for medium staple cotton has been raised to Rs 2,500 from Rs 1,800 per quintal.

Ajit Lakra, president, Ludhiana Knitters Association, has called the decision unfortunate.

Lakra said the decision was aimed at appeasing the farmers’ lobby, keeping in mind the coming general elections.

He adds with an estimated shortage of 3.5 million bales of cotton in the country, the government should check the cartels that are creating such shortages.

The textile firms in Ludhiana this year have remained under strain. Lakra said the production of textile firms in Ludhiana had declined by 20-30 per cent. The profit margins have remained low.

Earlier it was the dollar depreciation that resulted in an erosion of profit margins for the textile firms. In order to save themselves from currency gyrations, some of the export firms entered into forex derivative contracts where they again were exposed to huge financial losses.

Next was the labour shortage problem, followed by cotton shortage in the domestic market which resulted in cotton prices going up in the domestic market by around 35 per cent, eroding profit margins for the textile firms.