Q&A: S V Arumugam, Chairman, CITI

'More export sops needed to shore up textile sector'

S V Arumugam, who recently took over as the chairman of the Confederation of Indian Textile Industry (CITI), the textile industry’s umbrella body, talks about how the body plans to address the industry’s concerns, in an interview with Rajesh Bhayani. Edited excerpts.

Textile companies have been facing tough times. Many of those have even been finding it difficult to repay their loans. How does CITI, as the apex body, help them?
We have represented their case before the Reserve Bank of India and are also taking up the matter with the Indian Banks’ Association. We have sought interest subvention and rescheduling of loan payments, besides moratorium. We hope these will yield good results.

The government’s faulty cotton exports policy was at the root of the problem. Last year, in the beginning of the season, the government allowed exports of cotton. This created a shortfall in cotton procurement to meet the requirements of domestic millers and spinners. So, the cotton prices doubled from Rs 30,000 a candy to Rs 60,000 a candy within 3-4 months. As raw material costs rose, the cost of yarns also rose in sync and the garment makers were not ready to bear the cost burden. To help garment makers, the government capped the export of yarn which led to a glut and the situation worsened. As a result, the entire value chain in the textile sector had to go through turbulent times.

How can the textile industry come out of the woods?
There is a need to address some fundamental issues to revive the industry. Rather than allowing free exports of cotton, free exports of yarn (which adds value to cotton) could be allowed. And cotton exports should be allowed only after ensuring the availability to meet at least two-and-a-half months of domestic requirement. That would be nearly six million bales. China’s Cotton Reserve Corporation ensures the availability of cotton for domestic users. For this purpose, the corporation has been empowered to trade in cotton. India, too, could follow this model.

More sops for exports are also required. After removing DEPB (which gace 7.5 per cent benefit to yarn exporters), 2.9 per cent drawback has been allowed. This is not enough, especially since the demand from major markets like Europe has reduced on a looming recession.

Will these measures solve the problems?
Not completely. These are measures for the short term. Some policy changes made in the recent past, especially allowing duty-free imports from Saarc countries, will only strengthen competitors. And China will route its export of cheaper materials to India via Saarc nations. Even in the Union Budget, excise on branded garments was imposed. All these could hurt growth of the Indian textile industry and should be corrected.

Spinners were badly hit after yarn exports were not allowed and had reduced production six months ago. What is the status now that the cotton prices have fallen?
Things have started improving for spinners. Capacity utilisation below 85 per cent affects spinners’ viability. They were running at 65-70 per cent capacity until recently. Now, with some improvement in demand, the use of capacity has risen to 80 per cent and it could further rise by up to 90 per cent by next month. Power looms in South India were on strike for over a month. That is over now and the demand situation is improving there. Garment exporters, however, are not yet comfortable because of weak demand and stiff competition from Bangladesh, Vietnam, Cambodia, etc.