The Hindu Business Line : Fall-out of High Court order — Tiny Tirupur knitwear units fear cost rise, supply chain break

SMALL and medium knitwear exporters in Tirupur, relying mainly on independent textile processing houses, may face dislocation in supply chain and possible escalation in manufacturing costs due to the current imbroglio faced by the dyeing and bleaching units on the effluent treatment front.

Nearly 80 per cent of Tirupur garment exporting units get their knit fabrics processed on job-work basis from independent processors. They now run the risk of missing their scheduled shipment due to the uncertainties prevailing in the dyeing industry under compulsion to meet the Madras High Court deadline for making part payment towards the cost of `reverse osmosis' (RO) system for achieving `zero' discharge of effluents.

(It may be recalled that the Madras High Court had ordered the closure of 660 dyeing and bleaching units for not depositing part payment for the effluent treatment system. The court has posted the case for review on July 21)

"I get my knitted fabrics processed from four different dyeing units on job- work basis. Right now I am confident that one of them would be able to come clean by paying the stipulated amount for the RO plant but I am not sure about the other three dyers. And I don't know how long they would be able to operate in this way," said Mr Gopal Selvaraj, proprietor of Cholas Impex India, a medium-sized garment exporting unit that exports to West Asia and Europe.

The immediate concern for Mr Selvaraj is how to get his goods (already send for processing)back in the event of the closure of the three units. While half of the fabrics sent to these dyeing houses are still unprocessed because of the closure orders, Mr Selvaraj managed to retrieve the balance by either hurrying up the dyer to finish the work or shifting it to a larger dyeing house having the RO plant.

Mr Selvaraj is not alone; there are several hundred small and medium garment exporters, doing business with volumesranging between 10,000 pieces and one lakh pieces a month, who are caught in the uncertainty. They are also worried about the trails the environmental cost would leave on the sale prices of their products.

Mr Ajai Shah, promoter of Prime Overseas, an export firm that accounts for Rs 6-crore worth of garment exports out of Tirupur, said that only recently the dyeing houses had raised their processing charge by some 20 per cent. The current uncertainties may force yet another rate spiral from the dying units. "In such an event, it would pose problem for us to secure any corresponding increase from the overseas buyers who have already frozen their price quotes for our products."

Most small exporters say they incur 40 per cent of their production cost at the processing stage and any sharp rise at this stage would have a greater impact on the final pricing. They also fear that in the event of many small dyeing houses not being able to make the stipulated payment for the `zero' discharge system and consequently facing permanent closure, the sudden capacity squeeze among the Tirupur dyeing houses would drive the exporters on a capacity hunt.

The major dyeing houses, with modern effluent treatment plants, will force the garment units to cough up higher conversion charges thereby making their operation unviable in a highly competitive market.

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