Economy

S. India textile mills’ body seeks bailout package

L.N. Revathy Coimbatore | Updated on December 16, 2011

mills

Urges banks to treat Rs 11,000-cr Q1 loss as exceptional one

The Indian textile industry is in a state of flux caught between inconsistent Government policies on the one hand and the severity of slowdown in the world economy on the other.

The industry, which accounts for four per cent of GDP, 14 per cent of industrial production and around 12 per cent of the country's total exports is today fighting to survive.

Influence

Since the industry is a net exporter, any policy relating to exports and global market demand has had significant influence on its performance. The Government policy on cotton and cotton yarn exports towards the end of 2010 influenced both the cotton and yarn price creating an artificial scarcity of the produce both within and in the global market.

High volatility in cotton and yarn prices at the beginning of the year, sudden glut in the domestic and international markets, huge accumulation of yarn stocks, closure of dyeing units in all textile clusters – particularly Tirupur and more recently in and around Karur in Tamil Nadu due to environmental issues, have had adverse impact on the industry.

Crisis beyond control

The Southern India Mills Association Chairman, Mr S. Dinakaran, said the current crisis was beyond the control of the individual mills and, hence, the abnormal loss of an estimated Rs 11,000 crore in working capital during the first quarter of the current fiscal would have to be treated as an exceptional loss by the banks in its books.

‘It's the worst in history and the magnitude is much higher than the 2008-09 global meltdown,' the SIMA Chief said.

The industry has invested over Rs 2-lakh crore mostly under the Technology Upgradation Fund Scheme in the last decade and the current debt is over Rs 1 lakh crore.

Out of the 226 listed textile companies in the country, 83 per cent have shown poorer results and 127 companies incurred net loss during the first half of 2011-12.

While stating that the association has represented their case to the Government, the Reserve Bank of India and the Indian Banks Association, seeking timely financial package he said ‘the sympathy element to save this labour-intensive industry is still lacking. Any further delay would lead to irreparable loss.'

NPAs

To avoid large number of accounts in the sector turning NPA and units getting closed across the country, SIMA suggests that a moratorium of additional two years on repayment of all loans and interest (including TUF loans), with suitable modification in prudential guidelines on restructuring be made and allowed for all textile companies.

Incidentally, in 2008-09, a good number of mills had availed second rescheduling and in some cases, CDR facilities, because of global recession. SIMA requests that such units may also be allowed a moratorium and units with less than Rs 10-crore debt with a single bank be allowed CDR facility.

In view of the steep decline in the price of raw material and finished goods, mills are compelled to adjust with reduction in drawing power resulting in erosion of working capital requirement.

SIMA, while seeking conversion of working capital to term loan (Working Capital Term Loan) for a period of five years with moratorium of six months on behalf of its member mills has drawn the attention of the powers that be towards providing working capital for cotton at 10 per cent margin money and seven per cent interest, to help mills continue to buy cotton.

Reiterating that any delay in providing adequate respite could lead to social and industrial unrest as lakhs of people would lose jobs due to closure of units that faced capital erosion, he said ‘mills are compelled to work at 60–70 per cent capacity to retain workers without any industrial relations problems. But to make it viable, the utilisation levels would have to improve to 85 per cent. This will not only do good to the ailing spinning sector but help the cotton farming sector too.'

> lnr@thehindu.co.in

Published on December 16, 2011

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