Even as cotton yarn manufacturers and user industries such as hosiery and garments producers are involved in a slugfest in the wake of increase in yarn prices, the mills have refuted their claim of yarn shortage.
The spinning sector is witnessing a huge investment of about Rs 900 crore every month for replacement of older spindles or for new installation. This has raised fears whether the domestic cotton would be able to meet the rising demand. In an interview to Business Line, Mr J. Thulasidharan, Chairman, Southern India Mills' Association (SIMA), Coimbatore, shared his views on the path traversed by the industry and what lies ahead. Excerpts:
You have mentioned the rapid addition of spindles. Is this pace of addition something new to the industry?
Substantial addition in spinning capacity happened during 1994-97 and 2003-07. In fact, during 2005-07, the indigenous machinery was booked for even up to three years and the mills started importing Chinese machinery.
At the time of Independence, the country had around 10 million spindles. It took almost 43 years to reach 26 million spindles. The spindleage capacity as on August was 43.01 million.
What is the normal rate of addition in spindles annually in India? Normal addition is around one million spindles every year in the last 15 years. This is not an abnormal increase. It is sustainable if a stable and sound fibre policy (both for cotton and man-made fibres) is announced and adopted, and also the TUF scheme is reintroduced with 5 per cent interest subsidy for spinning.
Since Tamil Nadu is facing power and labour shortage, the capacity addition has stagnated. Significant additions are happening in states such as Andhra Pradesh, Himachal Pradesh, Punjab, Gujarat, Madhya Pradesh, etc., thanks to the abundant home grown cotton.
Can you quantify the investment in capacity addition every month?
Today, around three lakh spindles are added per month. This includes replacement of old spindles also.
Machines cost between Rs 25,000 and Rs 35,000 for a spindle depending upon the technology and (level of) automation. Even if we assume an expense of Rs 30,000, almost Rs 900 core investments are happening a month.
Cotton productivity is currently only around 520 kg a hectare as against the world average of around 750 kg . Hence, India has tremendous potential to improve productivity. We are already achieving over 900 kg per hectare in Gujarat in many areas.
Further, in the new capacity addition, 40-50 per cent spindles might use synthetic fibres and their blends. Hence, I don't foresee any scarcity in the near future, but for the cotton export policy.
Any cotton policy should give equal weightage to both the farmers and the industry. Currently, the industry is consuming 80-85 per cent of the cotton grown in the country and therefore, its competitiveness is essential to sustain the income for the farmers. We were insisting on export of surplus cotton in a calibrated manner so that adequate quality cotton is made available to the domestic sector and the industry remains competitive. Only 60 per cent of the crop is good and above average quality. The multinational traders corner the best quality cotton for exports and mills in the later part of the year are forced to pay the price of good quality cotton for the cotton of below average quality, which affects the productivity and quality of end-products, and the cost of production goes up. Mills are not able to buy the required cotton during the peak season due to inadequate working capital. A level playing is needed in the cost of funding. We have been seeking for working capital assistance at 7 per cent interest rate and 9 months credit with 10 per cent margin money.
Do you think the user industries would be in a position to absorb the increase in cotton/yarn prices and pass it on to buyers?
Till February 2007, Indian cotton was cheaper by 15-20 per cent when compared to the international cotton prices, as exports were restricted under Essential Commodities Act. Though the current cotton price is almost double when compared to the price that prevailed during the (same time) last year, Indian cotton price is cheaper by 10-15 per cent compared to the international price. Therefore, the downstream sectors should be able to absorb the increase in cotton/yarn prices and pass on the same to their buyers.In fact, the leading global retailers already have agreed to increase the price by 10-15 per cent to absorb the increase in cotton price.
The user industry, mainly knitted garment sector, needs to become cost-effective by making investments on automation, appropriate technology, work systems, productivity improvement, etc., to sustain their competitiveness. Currently, our competing countries such as Pakistan and Bangladesh have duty-free access to EU and US, while our exporters suffer (OOTC:WLVTQ) 16-26 per cent duty on this account. Hence, our exporters need a special stimulus package to compensate this drawback till necessary free trade agreements between India and EU/US are in place.