In the spinning and weaving business, India has around 30% over capacity. PM MITRA Parks may add more capacity in the next years. Overcapacity has already become a source of concern for the industry, as demand in the global clothing market has slowed. Industry organizations such as the Confederation of Indian Textile Industry (CITI) and The Southern India Mills’ Association (SIMA) have cautioned the government that if the situation is not handled quickly, many textile units, particularly MSME companies, could face financial difficulties. Industry groups have produced a wishlist to obtain assistance from the government.
T Rajkumar, president of CITI, and Ravi Sam, chairman of SIMA, stated at a joint press meet in Coimbatore that the textiles and clothing industry is currently facing unprecedented financial stress, owing to the prolonged Russian-Ukraine war, which has impacted the EU and US markets, higher inflation, a slowdown in the global economy, an 11% import duty levied on cotton, and a disruption in the supply of man-made fibers due to certain practical difficulties in implementation. When compared to the previous year, the cumulative effects are an 18% decline in overall textile and apparel exports, a 50% drop in yarn exports, and a 23% drop in cotton textiles exports.
According to industry groups, the country now has more than 30% surplus capacity across the textile value chain, particularly in capital-intensive areas like spinning and weaving. Banks have issued red alerts to most textile units throughout the nation due to unanticipated financial pressures. The repayment of short-term loans given during the COVID-19 era has greatly increased the textile industry’s financial burden. The majority of small and medium-sized spinning mills in Tamil Nadu have indicated that they would cease yarn production and sales on July 15, 2023.
Cotton prices fell from 63,000 per candy of 356 kg in April 2023 to 56,000 per candy in July 2023, eroding the spinning sector’s massive working capital. Even with today’s reduced cotton prices, mills are losing $10 for every kilogram of yarn. Power pricing increases, particularly for SME facilities in Tamil Nadu, have rendered 2,000 spinning mills in the state uncompetitive.
According to the two groups, the textile sector urgently needs interim financial assistance to avoid units from becoming NPAs (non-performing assets) and causing irreversible harm to both financial institutions and textile units, particularly SME units. The chiefs of industrial organizations urged that the 11% import charge on cotton be removed. The industrial groups have also requested help from the Indian Banks Association and other major financial institutions.
They have encouraged them to prolong the one-year moratorium on principal payments for the textile sector. Furthermore, ECLGS loans should be changed to six-year term loans rather than three-year loans. On a case-by-case basis, financial support is also required to alleviate the strain on working capital.
In a separate proposal to the Tamil Nadu government, they have requested that electricity tariffs be reduced since the industry cannot tolerate a sharp increase. According to CITI and SIMA, the Indian sector would reap the benefits of recent FTAs with Western nations only in 2024 (after FTAs are approved, signed, and implemented), but textile units will not be able to exist until then without support from both the Central and state governments.
