India - Textile Industry optimistic about revival

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The textile industry in India is optimistic for an early revival of Growth. According to a CII Industry and Economic Update, sales and profitability of the sector, especially mills and Textile and Clothing units, could improve from the lows of 2008, as some fabric and garment production units have reported a modest pick-up in international demand. This is expected to translate into higher demand for spun yarns. While spinners are reporting a slightly slack demand for cotton and polyester cotton yarns, polyester viscose yarn manufacturers continue to receive export orders.

The textile sector's financial performance was adversely impacted by the rupee appreciation in 2008, which made Indian Textile and Clothing (TandC) exports uncompetitive. Also, there is a gradual slowdown in the growth of cotton consumption caused by declining export sales and shrinking profit margins, and slowdown in domestic TandC production.

According to the study, due to sharp increase in operating costs, operating margins registered a steep decline in the financial year 2009. Although domestic retail has to some extent buoyed prospects of the sector, even domestic demand has showed signs of slowdown attributable to a slowdown in consumer spending.

The investments in textiles projects in the five Southern States of Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Puducherry added up to at least Rs. 69.19 billion, for projects with expected investments. In terms of investments by various States, Andhra Pradesh has estimated investments of Rs. 33.79 billion, followed by Tamil Nadu (Rs. 31.65 billion), Karnataka (Rs. 2.7 billion), and Kerala (Rs. 1.06 billion). Thus, two States-Andhra Pradesh and Tamil Nadu - account for around 95% of total investments. Ownership wise, it is the private sector firms that own a large portion of over 98% of the total investments.

The industry expects that there will be about 8% decline in cotton production in India, the second-largest producer of cotton in the world, accounting for around 20% of world production, to 29 million bales during the current year. There could be about 5% decline in domestic cotton consumption in 2009 but a marginal growth in consumption in 2010 is expected.

During Kharif 2008-09 season, lack of rains in the Central and Southern States (where large areas depend on monsoon for cotton sowings) had affected sowings during June-July 2008. However, receipt of good rains from July 2008 helped to revive sowings and made up for the fall in acreage to a large extent. In the wake of firm prices in 2009, there are indications that India's cotton acreage may increase from 9.37 mha in the current year to 9.5 mha in 2010. Domestic raw cotton prices had increased significantly during 2007 and 2008. Despite heavy market arrivals, domestic prices had been relatively firm on strong export demand. During 2009 however, in spite of the Central Government raising the minimum support price of different varieties of seed cotton by 39-45%, cotton prices have declined sharply because of weaker international prices, and less favourable demand prospects.

Manikam Ramaswami, Chairman, Policy Sub-Committee, CII - Southern Region and Chairman and Managing Director, Loyal Textile Mills Ltd. said that the textile sector is driven largely by exports and around 60 per cent of Indian textile production is being exported. Textile Industry being the largest employment provider in the country, the Government should incentivise textile exports to make this industry globally competitive.

Ramaswami pointed out that the Government should take steps to stabilise the raw cotton prices at par with neighbouring countries like China, Bangladesh and Pakistan. With the incentives available to the Cotton Exporters, Indian cotton is available in international markets at a cheaper price than India, making the Indian Textile Industry vulnerable to global competitions.

The Textile Industry has also welcomed the recent announcement of Dayanidhi Maran, Union Minister for Textiles, Government of India, for releasing a subsidy of Rs 2,546 crore under the Technology Upgradation Fund Scheme (TUFS). This move of Government in providing subsidy through TUFS has come at a very opportune time when the textile industry is looking for working capital support and also helps in increasing the productivity.

With the Textile Industry expected to do well in the coming months, there has been equal thrust towards improving the power sector performance. Dr Pramod Deo, Chairman, Central Electricity Regulatory Commission recently met representatives of the power sector and discussed concerns about generation, distribution and transmission of power and the role of private enterprises in augmenting power capacity in India.