Despite an oversupply situation for now, the textile industry is planning spinning capacity additions, in anticipation of a pick-up in demand from both the domestic and export markets for cotton yarn.
Currently, it has an overall installed capacity of 50 million spindles. And, 10-15 per cent more is expected to be added in the next one year.
"So long as cotton from India carries export demand, there won't be any saturation in spinning capacity. Which is why the industry anticipates revival in domestic and export demand for yarn, which has led to plans for capacity expansion," said D K Nair, secretary-general of the Confederation of Indian Textile Industry.
Of the the yarn spinning capacity of 50 million spindles, about 45 million are functional. Capacity utilisation is estimated at 75 per cent, due to oversupply.
In an analysis on the yarn industry, the Center for Monitoring Indian Economy said, “We expect the growth in yarn production to increase in 2015-16 by 4.8 per cent to 4.3 million tonnes.”
According to K Selvaraju of the South Indian Mills Association, the capacity addition will be majorly in Gujarat, Maharashtra and Telangana. “These states have surplus cotton available, which they intend to use for spinning. Hence, they are offering several incentives for units in the state to either set up new or expand existing spinning capacities,” he said.
Gujarat alone expects to see two to three million spindles being added to the current cotton spinning capacity of about four million. According to those in the industry and the state government, 40-50 per cent of the additions are being made by existing cotton ginners. For instance, Raja Industries plans to add 25,000 spindles to its current 36,000 spindle capacity this year. Yarn major RSWM, part of the LNJ Bhilwara Group, has just commissioned an expanded capacity of 450,000 spindles, from the earlier 420,000.
"There are new markets emerging for cotton export, even if China is reducing its demand. Plus, the oversupply situation is expected to be short-lived, given the central government's vision of $500 billion worth of total textiles, which will push all parts of the textile value chain," said L Jhunjunwala, president of RSWM, which has Rs 2,500 crore of its total Rs 3,000 crore annual turnover from cotton yarn.
Nair says the yarn capacity expansion need to be complemented with expansion in weaving, too. "People are seeing scope for more spinning and hope to export more cotton yarn this year, which is why they are expanding. However, our problem is less capacity in weaving. A lot of yarn is not being converted into fabric through weaving. The industry should look at expanding weaving as well," he added.