Spinning mills may stall production if Centre extends yarn export curbs

Industry says export of yarn made from imported cotton not sufficient.

India’s spinning industry may have to suspend production if the Centre delays the announcement of the second tranche of export quota for cotton yarn. Spinning mills across the country are sitting on a heap of yarn ready for export.

The Ministry of Textiles had suspended registration for cotton yarn exports on December 1, because the 720 million kg ceiling was not absorbed. However, the industry wants permission to allow export of surplus yarn.

The total anticipated production of cotton yarn in 2010-11 is 3,540 million kg and the projected domestic consumption is 2,644 million kg. With a heldover stock of 50 million kg (part of the 720 million kg that could not be shipped) and 176 kg of surplus yarn, the industry estimates that the total exportable surplus with the spinning mills is still over 226 million kg.

The representatives of national and regional textile bodies, including Confederation of Indian Textile Industry (CITI), North India Textiles Millers’ Association (NITMA), South India Cotton Association, Indian Spinners Association and South India Textile Millers Association (SITMA) told Business Standard that rising cotton prices and a fall in demand of cotton yarn had squeezed their margins. The freeze on exports has further affected the industry.

According to D K Nair, secretary general of CITI, cotton prices have touched Rs 51,000 a candy against Rs 40,000 per candy last year. Domestic demand has also declined because of the high prices. There is also a glut in yarn stocks while there is restriction on export quota. “The way the things are going, the industry may collapse anytime.”

The Director General of Foreign Trade (DGFT) had last week allowed exports of yarns made out of imported cotton. However, that was not sufficient.

Nair said the Regional Excise Authorities were neither informed them about the move, the procedure it would follow and the name of authority responsible for issuing the licenses. Moreover, he said, it was going to help only a handful of millers who make speciality yarn out of imported long staple cotton.

The annual usage of cotton in India is 27 million bales and only five lac bales are imported annually. Out of this only 2.5 lac bales are used to make yarn meant for exports. This would constitute only 1 per cent of the total production of cotton yarn.

The President of NITMA (North India Textile Mills Association) Ashish Bagrodia said the Cotton Advisory Board anticipated a total crop size of 32.9 million bales but the actual crop size may touch 30.9 million bales due to crop loss in the southern states during the western disturbances in November and December.

Bagrodia said the export quota of cotton should be decided in April-May when the actual crop size is known. The spinning mills, according to him, are in a catch-22 situation because cotton prices are going up while the market was not in a position to digest any hike in yarn prices.

Due to this spinning mills are incurring a loss of Rs 40 a kg which is hitting the bottom lines. Earlier, there was no quota for yarn exports and the spinning mills had been adding capacities over the past few years looking at the prospects of global demand, but the ban on exports without any valid reason has created excess yarns for all spinning mills.

The spinning mills are also worried about the export obligation to be met under EPCG (Export Promotion Credit Guarantee Scheme). An importer of capital equipment has to export goods manufactured from that machinery worth eight times of the customs duty saved in a period of eight years in this scheme. The restriction on export would not allow them to meet their export obligation and they may be penalised for that.

The millers in southern states are facing similar problems and have an average ready stock for two months, said K N Vishawanathan, the president of South India Cotton Association (SICA). “Millers are completely clueless about the future. We may have to resort to stop mills as we do not have space to store stock.”

Chairman of Indian Spinners Association V K Ladhiya said the situation is precarious. The huge funds invested by the spinning industry and the export orders, are in jeopardy. If the government wants to regulate exports it should release the quantity per month.

Such policies in the era of free trade would undermine India’s image in the international market to the advantage of its competitors. All textile bodies are trying to meet the minister to find a solution and save the economy from the impending loss in terms of employment and bank borrowings.