Textile industries in India passing through a slowdown in recent months because of drop in yarn exports by 65%.Demand and Supply gap is steadily increasing and inventory of finished goods keep on an increasing trend and working capital is locked in the form of unsold goods.
This has eventually forced the manufacturing units to reduce the production capacity by 20 to 30% across the nation. This unusual condition leads to job losses by more than 35% Textile related employment(Estimated approximate total jobs rendered by textile industries are about 5 crores) directly or indirectly overall in India.
In these pages, let us discuss the probable causes for this sudden slow down and need of the hour for the revival of this industry and Indian economy from this current crisis.
PROBABLE REASONS BEHIND THIS SLOWDOWN:
I.)US-CHINA TRADE WAR:
America and China are the first two rank “economic powers” of the world. Once America imposed “higher tariff” for Chinese exports up to 24.3% after June 2019, some unbalance started in international “economy order”.
Their smooth trade in global market is affected. Likewise, with the beginning of this unwarranted trade war. We lost our export of yarn to Chinese market by 50%.The yarn that was not exported to China became a surplus quantity and finds its position by overflowing in domestic market.
Hence the supply in domestic market became surplus and trade unbalance is the result. Reduction in demand forced the manufacturer’s finished goods inventory blocking the working capital. This is one of the major cause forcing the industries to curtail their production and the employees live with a fear of losing their jobs .However they began to experience delayed wages and some of them a sizable cut in their average earnings per month.
II.) LOWER RATE OF APPAREL EXPORT GROWTH:
Indian apparel growth rate is not encouraging in the recent years.TPP agreements globally clearly sends out India from Global garment market as Vietnam is the major beneficiary in this trade agreement. China escaped from the brunt of this TPP by installing garment units in Vietnam. Indian entrepreneurs missed this opportunity also as we are averse to such kind of risks. This caused reduction in demand of yarn by Indian Apparel Exporters. Higher manufacturing cost, higher lending rates for working capital and no appreciable “Trade Agreements” with EU&America forced this industry lag behind the competing small nations like Bangladesh, Indonesia and Vietnam whose apparel exports are 3 times higher than us.
III.)DROP IN DOMESTIC CONSUMER PURCHASING POWER:
Indian domestic market is very huge one that helped to absorb any big shake in market upheavals in earlier occasions. But after the high value “currency devaluation”, the scenario is totally different with extra cautious approach by every trader/manufacturer. The purchasing power of common man stooped down to a lower level. Though the availability of textile commodity is huge, the purchasing power of Indians is lower.
Calculative taxation of the all products helps in building the nation. Since after WTO agreement our “economy growth” depends on our “export capabilities. Whole world market looks for “cost effective quality – performing products”. To win the competition, our product quality and price should be competitive in the world Apparel market and then only demand for our product in “International Market” will increase and our export presence can go up. For that the Apparel industry should be “sustained” by the Government by the way of “regulated affordable taxes, levis and encouraging export subsidies and incentives”.
V.)POOR TECHNOLOGY UPGRADATION of Indian Textile sector:
Looking only on quantity and giving low importance to product quality reduces the demand for the products. Spinning and garment industries should think of going for “Technology Upgradation” esp. in spinning & processing sector to compete the international market instead of “Volume expansion by Spindle Addition” and “Enhanced production through Garment Line Addition”. This will help to reduce manufacturing cost and increase product quality. But it definitely requires GOI intervention by suitable revived introduction of user friendly scheme `TUF-Technology Upgradation Fund` for Textile Industries.
REMEDIES FOR REVIVAL OF ECONOMY & BUSINESS- COMMON AND INDIVIDUAL:
I.)INCREASE MONEY FLOW IN THE HANDS OF BUSINESS UNITS AND PEOPLE:
People’s purchasing power should be increased by the Government by the way of allowing reasonable level of money flow in people’s hand. For that we can make artificial inflation by 1 or 2%, by increasing earnings of employees of all category and by paying reasonable % subsidies in the income tax collected from individuals and companies yearly as a motivational initiative.
To put the Indian Economy back on the rails, GOI’s may pump in more money in the hands of its citizens as it has taken back all high value currency notes from the hands of its citizens by a bold, decisive and good intentional implementation of demonetization, which unexpectedly slowed down our economy. This will increase the purchasing power of the people and the demand will increase and the supply will go up and there by production will increase, employment will be safe guarded and our economy will start growing faster.
GOI should ensures its people’s purchasing power improved so that Demand and Supply ratio maintained as 1:1.Fixing deadlines for filing all types of taxes or punishing by the ways of penalties and penal actions by tax authorities will frustrate the business community. Fair approaches by tax department for filing all taxes and giving reasonable time will help the tax payers to fulfil Tax department’s requirements.
Domestic consumption level will rise to 10% and above from the sharp fall of 3.1% in first Quarter of FY 2019-20, in due course if the money flow increases and the purchasing power of the citizens improved from the current level.
II.)REDUCE INTEREST RATE ON MONEY BORROWED:
”Public Sector Banks “may think of reducing the “lending rates” to the “Borrowers” by 2% from the current MCLR rate for all loans (Term Loan, CC, Home Loans, etc.,) of industries and individuals..RBI should help banking sectors by reducing its repo rate additionally by 1.5% from current 5.25% so that business can be improved and economy can grow. Releasing loans alone will not help unless reducing interest rates on borrowings which needs to at par with international LIBOR rate + reasonable premium for banks suiting Indian businesses.
III.)REDUCE LONG TERM DEPOSITS’ INTEREST RATE:
RBI should think of allowing banks to reduce long term money deposit’s interest rate by 2% proportionately from current rate so that banks’ cost of funds will get reduced and also banks must be rationalised to keep the expenses at control.
IV.)RE-ALLOT & RELEASE TUF:
Government should re-introduce “TUF” and help upgrade all textile industries machinery to compete global market with cost effective quality product and scrap their out dated technology machinery & equipments.This scheme should be extended to all textile industries like spinning, knitting, weaving, Textile processing, garmenting etc.,
User friendly “TUF” scheme with “5% Interest Subvention” should be made available to all the beneficiaries with simplified rules and regulations from banks and support from “Ministry of Textiles”. Timely refund of TUF subsidies, positively at every quarter will help to revive Textile Industries.
“TUF” loan may be limited to a maximum of rupees 100 crores for each beneficiaries so that more number of Units can avail the allotted funds and can upgrade their manufacturing machineries and equipment to improve their production,productivity,quality and control their cost of production to compete in global market. With this limit on Loan amount, risk of defaulters can be eliminated.
Government should keep this “TUF” scheme in force for a period of 7 years and should allot at least 10,000 crores per year for “TEXTILE SECTOR”. At the end of 7 years, our Textile Industries will be equipped and modernized to challenge international competition as we do now in our “defence forces modernization.”
V.)REGULATED TAXES & LEVIES:
Government should review, reduce and regulate the taxes on “Goods and Services” so that they could be affordable by the industries and allow the industries to continue their business without slow down.
With the increased revenue received by government, by the strict implementation of GST, its rates may be reduced to possible minimum level. Since industries are “employment creators & providers” to the nation, extreme care should be taken, while deciding tax rates on Goods and Services.
Taxes should be levied equally for all textile fibres, natural & man made and not to exceed 5%.GST registration and payment exemption limit may be doubled for “SMEs” from the current 40 lakhs limit.”GST Composition Scheme” limit for goods should be raised to 2 crores without the restriction of “Inter State Transaction” and for Service Tax, the limit may be raised to “1 crore” from the current “50 lakhs” limit.
The loss about 8000 crores to the government will be made available to the hands of common citizens of India and the money flow will increase and economy will grow.
VI.)ENCOURAGE EXPORTERS BY SUBSIDIES & INCENTIVES:
Government should extend the “Rebate of State and Central Taxes and Levies (RoSCTL) to all textile chain.
“Timely refunding of all subsidies, input credits and incentives” will help the industries to manage the slow down. Helping exporters will directly help to improve “GDP” growth from current (Q1 FY 2019-20) 5% level to maximum achieved 8% level gradually.
TUF subsidies are not timely dispersed by Govt to the beneficiaries. This should be released without any delay to industries. GOI to simplify rules and regulations for FDI and domestic investments on Indian Industries.
VII.)INCREASE REPAYMENT LIMIT OF TERM LOANS OF INDUSTRIES:
Government may think of “Term Loan” availed by Industries repayment period to a maximum limit of 12 years and announce zero interest for the last two years EMIs. Term loans interest rate should be affordable and should not exceed 7% at any time.Banks may be encouraged to restructure the loans on borrowers’ request.
VIII.)MILLS SHOULD PRODUCE COST EFFECTIVE QUALITY PRODUCT:
As the demand is shrinking and competition is increasing, it is time to rethink and evolve newer strategies in production and marketing processes. Upgrading our five major factors, material, men, machine, methods and market will help for strong rooting of any establishment.
Textile industries should give more importance to raw material quality to produce cost effective quality products.Ones the raw material quality is taken care of, 90% of end product quality is assured. Mills with stringent raw material management survive any market slow down.
Mills should strive and invest for excellence in their work men’s skill level by giving extensive skill development training so that the cost of production can be reduced by increasing productivity, reducing non confirm products, and assuring product quality.
Mills should implement in their production process few of the various proven methods and systems like QMS(Quality Management System),TPM(Total Productive Maintenance),5S System, MS(Performance Maintenance System),Budget System etc., so that confidence level of both the Supplier and Buyer will go up. Mills practising few of these systems can withstand any economic storms.
Mills which are steadily transforming its armoury of machinery according to the technological innovations reap the results and survive all time. High production and high quality oriented “State of the Art” Machinery reduces the cost of production and assures high quality product.
For any product sales, the market, either domestic or overseas is very important. Best marketing strategies, focus on Buyers’ stated and unstated needs, customer satisfaction, will help any industries to face any short term or long term challenges.
IX.)MILLS SHOULD INVEST ON VALUE ADDED PRODUCTS:
Domestic and global demand is increasing for value added products. Organic Yarn, BCI certified Yarn, Compact yarn, slub yarn, injection slub yarn, magic slub yarn, mélange yarn, high twist yarn, fancy yarns etc. Spinning Mills with more than 50,000 spindles may run different varieties of yarn for different market.
X.)MILLS SHOULD THINK OF ENERGY CONSERVATION & GREEN ENERGY WHICH PAYS PREMIUM FOR PRODUCTS:
Since the power cost contribution is about 50% of the conversion cost, Spinning Mills should give importance to power cost control. Power tariff varies state to state and country to country. Hence to compete both domestic and global market, Mills should fix some targets to control UKG and there by power cost.
In TamilNadu State, power cost per unit comes between Rs.6.50 to 7.10 based on usage of EB power, private power, third party power and implementation of various power saving measures by Mills.
A saving of Rs. 1.5 per unit in coarser to finer count will help to reduce power cost by Rs.5/- to Rs.15/-per kg which is substantial reduction in conversion cost. Government power tariff in Gujarat State benefiting the Spinning Mills about Rs.5 per kg in 30s combed hosiery count.
In Bangladesh, Spinning Mills are using the economical CNG (Compressed Natural Gas) as fuel for power generation. The power cost per unit is only Rs.1.70 (2.0 DK/KWH).They have Rs.5 per unit advantage in power cost and Rs.15 per kg in 30s Combed Hosiery yarn.
In labour cost, additional advantage of Rs.5 per kg.Overall advantage in power cost and labour cost is about Rs.20 per kg in 30s Combed hosiery count. Though we are deprived of such advantages in India, we should still explore newer avenues to reduce our power cost to compete globally.
Periodical “Energy Audit”, and “Air Audit” will help control power cost.” Drives “used in humidification plants will help reduce power cost during winter season. Mills with own Wind Power, Solar Power get some advantages than others. Government may encourage green power projects with good subsidies.
XI.)Contamination free Indian Cotton and Fine varieties
India, even though the largest producer of cotton in the world, we depend on imports for:
- -Contamination free cotton
- -Super fine varieties
In- spite of Technology Mission`s concrete efforts to promote the quality of Indian cotton in terms of Quality consistency/Contamination free cotton, results are distinctly lower and we still depend on Imports for Contamination free cotton This situation can change only and only if the Growers of Indian cotton are directly in touch with the spinners –leave alone the middlemen. The trading of cotton in India needs a sea change if some developments need to take place as per the vision of Technology Mission by GOI.In India, we have SUVIN, SURABHI, VARALAKSHMI and MEENAKSHI cotton long staple fine varieties which has better properties than Imported PIMA and GIZA. Unfortunately, in the absence of support from Spinners added with speculative market conditions restrict these varieties to a very low output –leading to greater demands for imported cotton. Even DCH 32 is not promoted in the right manner and we even get adulterated DCH 32 nowadays, because of poor traders` practices.
Revival of our economy is certain and eminent. However this kind of continued slowdown is not healthy. Since the slowdown is not only due to internal factors but also due to global trade agreements and political factors we need Government of India`s support to form suitable strategies as stated above including renewed Technology Mission for Cotton. We believe steady growth will be guaranteed by the collective efforts of our Government, Industries and people of our nation. Hence constructive positive and creative approach with patience will help grow the economy faster. Moreover Spinning Mills should plan internal strategies to withstand any challenges in the market. Keeping in mind the experience gained in domestic and global market, Mills should take concrete action to reform its production and marketing activities to withstand any up and downs in near future. With the high calibre technical team, and the vibrant Textile Associations available with us in all textile segments, all things are possible.