'Revival of sector depends on govt support' – Cheslind textiles

June 24, 2009 - India

The textile and clothing sector has received a battering since the last few months due to the impact of the recessionary trends prevailing in global markets. Companies are either cutting down production or are shutting down units, which is leading to an increase in unemployment levels. To get a clear picture of the current and future situation, Fibre2fashion has taken the initiative to speak to a few leaders from the sector. To begin with, we spoke first to Mr Prakash Maheshwari, Director of Cheslind Textiles Ltd.

Cheslind Textiles is a professionally managed and growth oriented company engaged in manufacture of Single, TFO doubled and gassed Yarns. The company operates around 64,500 spindles and produces 6,000 MT of yarn per year and it is a subsidiary of RSWM Limited, a LNJ Bhilwara Group Company. The main unit of the company is located at Bagalur (Tamil Nadu) and the TFO unit is located at Pondicherry. Cheslind works with quality conscious end users in Italy, Switzerland, Portugal, Spain, Turkey, Korea, Japan, Taiwan, Bangladesh and the Middle East.

Mr Maheshwari was very kind enough to spare time from his busy schedule and first began by giving a very detailed assessment by saying, “Generally speaking, on account of global melt down and impact of the recessionary trends prevailing in global markets, there is a great deal of suffering to textile and clothing sectors also. The gap between supply and demand has caused unhealthy competition within our country and across the countries for global trade. When considering the export business, it gets further affected on account of fluctuating rupee/dollar relationship in India and also on account of fluctuating foreign currency relationship in most of the importing countries”.

“At Cheslind, we operate 64,512 spindles, manufacturing medium and fine count 100% cotton yarn. We are suffering additionally on account of power cuts, power tripping and other related issues causing losses. The alternative source of power i.e. oil based diesel generating sets are no more economical to operate with increased cost of fuel. The situation becomes worse when there is no availability of power during the so called peak timings i.e. 6 pm to 10 pm. All these factors lead to extra cost of production and deterioration in quality of the product because of interruptions”, he added.

“Other issues concerning the textile and clothing industry in genera,l relate to availability and pricing of cotton where an abnormal increase in MSP has its impact. The international price of cotton is lower than those prevailing in Indian markets which are a matter of concern for business. High interest costs, blocking of funds in Cenvat, TUF interest subsidy, DEPB, duty drawback etc., is causing serious concern about availability of working capital for running day to day operations. It has further worsened on account of continued cash losses and on account of factors mentioned above, there are production cuts and closing down of units even which is leading to an increase in unemployment levels”, he continued saying.

“Our associations at various levels have represented to the Govt. of India in the past and there were certain support measures announced by the then Govt., but those measures did not help the industry to revive to the desired level and get momentum for the future. With new Government at the Centre, it is expected that in the forthcoming Central Government’s budget, the industry would get the desired support. In a recent meeting with the Minister of Textiles, Mr Dayanidhi Maran, our association has once again emphasised the need for immediate support on the following issues”;

1)Raw Cotton -
Relax working capital norms specifically for cotton by charging interest at 7 percent against PLR at present. Reduce the margin money from 25 to 10 percent and increase the credit limit period of 3 to 6 months to nine months. Withdraw 5 percent export incentive offered for export of cotton and also curtail the bulk discount sales as practiced by the CCI and NAFED which benefited only the cotton traders and the competing countries like China, Pakistan, Thailand and Bangladesh.

Streamline the roles of CCI and NAFED particularly the procurement and sales policy and ensure that the benefits reach only the cotton farmers and the industry and not the handful number of traders as happened during the current cotton season and the last but not the least, revamp the MSP for raw cotton on a scientific basis so that the interests of both the cotton farmers and the textile mills are taken care of.

2)Manmade Fibres -
Withdraw import duty and the central excise duty on manmade fibre including their intermediaries so as to benefit the weaker section of the people. Since cotton textiles have become expensive, the poorer section of the society can afford only the synthetic textiles and currently, the consumption of cotton and synthetic textiles in India is in the ratio of 60:40 as against a total opposite in overseas countries.

3)Considering the undue delay in reimbursing TUF interest subsidy and which has eroded the working capital of mills, either make the interest subsidy as net of interest or convert all the Government dues including TUF subsidy, TED etc., into working capital margin money.

4)Relax the banking norms particularly for CDR proposals and moratorium on repayment of term loans so that NPAs are avoided and also extend the repayment period for TUF loans to 15 years.

5)Export Incentive -
Reinstate the interest subvention of 4% on export credit effective from October 2008. Increase the duty drawback taking care of all State levies, cross subsidies, surcharges on power and other infrastructural cost including transport so that the Indian textile and clothing products are made competitive in the global market.

6)Withdraw excise and customs duty on all liquid fuel meant for power generation by the textile industry ( Tamil Nadu alone accounts for one-third of the textile business in the country and is facing 50 percent power shortage and the trend is likely to continue for another three years)

7)Refund accumulated Cenvat Credit

We began by asking him the first question as to how would he rate the first quarter of the current year vis-à-vis the first and fourth quarter of 2008 and if it did see any signs of recovery, to which he said, “The first quarter of the current year vis-a-vis the first and fourth quarter of 2008, indicates signs of recovery but it is not stable on account of fluctuating dollar/rupee relationship and cotton prices which are not coming down”.

Next we gave him a crystal globe and asked him to foresee the rest of 2009, to which he optimistically said, “Looking at expectations and support from the new Government at the Centre, it is optimistic all around and rest of the year should be performing better”.

We concluded the interview by asking him about the steps the industry has taken to reduce the impact of the crisis, to which he explained by saying, “Steps taken by the sector to reduce the impact of the crisis, is not much in the hands of the industry because raw material cost accounts for approximately 60-65 percent of total cost of production, which has been highly volatile in the last few months.”

“Another important factor in cost of production is the power cost and we are suffering on account of power cuts, tripping and in-consistency in quality power supply. The third important cost is interest cost where again we are looking forward to have Govt.'s intervention for providing funds at reduced rate of interest and to provide additional funds for purchasing cotton and for taking care of the funds blocked in various incentives and benefits provided by the Govt”.

“Looking to all these factors, the revival of the industry depends much on the Government support as we at the industry level would continue our efforts for various cost reduction measures and maintaining quality and consistency of products to meet global competitive scenario”, he concluded by saying.