FICCI paints grave scenario in meeting with Cabinet Secretary

18 Dec '08

9 min read

Effect on Profitability:
Many textile units had made huge investments during the last three years, as is evident from the TUFS utilization figures. With increased turn over and nil or negligible profitability, they are now becoming unviable. The quarterly results of textile companies in Q1 and Q2 of current fiscal show a significantly negative trend.

Profitability has been falling consistently during these two quarters for most of the companies including the usually profit making ones and there are no signs of the situation improving any time soon. And the situation becomes graver when viewed against the negative growth of last year in the profitability of most of these mills.

According to a news item from Mumbai in The Hindu Business Line of 15th December 2008, a total of 15 corporates have approached the CDR Cell for debt restructuring after the present economic slow down began and 8 out of them are from the textiles sector, with debt ranging between Rs.100 crore and Rs.200 crore each. This is a clear indication of the crisis that has gripped this industry.

Effect on Exports:
After registering lower growth for some time, our exports have now started declining, as is clear from the figures of DGCI&S and also from the import figures available from our major markets. The current exports are mostly against orders received before the economic crisis began in the importing countries.

Orders have dried up substantially during the last couple of months and therefore the export trends are bound to be more negative in the coming months. The present trends indicate that there will be a decline of at least 5 percent in our total export of T&C products this year, compared to 2007-08.

Effect on Employment:
Already, at least 2-3 percent of production has been lost because of the negative trends in the domestic as well as international markets. Textile units will hold on to workers even beyond their actual requirements because of the problems in retrenchment and also because of the hope that business may return. However, their holding power has limits and at least a million jobs are at serious threat in this industry during the current year.

Measures Taken by Competing Countries:
The international market conditions are beyond the control of government. But there are measures that the government can take, even at this late stage, for mitigating the problems of our industry at least partly. Our competing countries like China and Pakistan reacted quickly to the declining international demand.

In July 2008, China announced a 2-4 percent increase in the rates of VAT refund on T&C exports to take them to 13 percent and in October, they increased them further to 14 percent. It is understood that they are in the process of announcing another hike of VAT refund to 17 percent.

Around the same period, Pakistan announced the reintroduction of R&D assistance to garment exporters at 6 percent, 5 percent refund of interest paid on loans for machinery purchased by T&C industry, 3 percent interest subvention for spinning industry and a two year moratorium on repayment of the principal amounts and interest on term loans taken by the T&C industry.

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