Textile mills will suffer once Telangana turns cotton hub

Amit Mitra M. Somasekhar Hyderabad | Updated on March 12, 2018

A view of spindles lying idle at a spinning mill near Guntur in Andhra Pradesh (file photo).

Former US President Bill Clinton’s favourite Cutter & Buck brand of T-shirts, which he wears while playing golf, is made by an apparel maker in Hyderabad.

GTN Textiles, with units around Hyderabad, supplies the T-shirts to Cutter & Buck. When Clinton visited Hyderabad in 2000, the then Chief Minister N. Chandrababu Naidu gifted him a pair of ‘made in Hyderabad’ apparel for the President.

In the last decade, several others like Suryalakshmi, Vijay, Pokarna, Suryajyoti have regularly supplied to international brands such as Giorgio Armani, Roberto Cavalli, besides retail chains Walmart, Tesco, NEXT and Sainsbury.

However, since 2010, exports started dipping with the global economic downturn and competition from Bangladesh and China.

This was further aggravated with domestic problems including power cuts, rising raw material costs and a stiffer tax regime, which led to cut in production and drop in turnover.

Now, the textile mills have to confront a new challenge on the home turf.

The T-effect

The bifurcation of Andhra Pradesh may tear the textile industry apart, making one State a dominant cotton producer and the other a hub for mills.

While the Telangana region accounts for almost 60 per cent of the cotton production of the State, the coastal Andhra and Rayalseema regions have bulk of the textile mills.

Industry players fear that if mills have to buy cotton from the new State, they would have to shell out additional taxes, which would further squeeze their margins.

The State is currently the third largest cotton producer, at about 70 lakh bales.

It has about 150 mills, out of which 50-odd are located in the Telangana region, with coastal Andhra having a lion’s share. Over 21 lakh spindles were added in the last 10 years, taking the total capacity to 35 lakh spindles.

“It will be a new situation for the mills from Andhra which would have to buy cotton from the new State, paying CST and losing out on Modvat credit,” says G. Punnaiah Chowdary, Chairman of the AP Spinning Mills Association.

He points out that mills would have to pay two per cent CST, which will burden a 25,000-spindle capacity mill with an additional Rs 7 lakh a month.

The association feels that the rollout of the proposed GST regime would iron out this problem, as there would be uniformity in taxes.

“We cannot shift our existing mills. And setting up new mills is capital intensive, requiring about Rs 75 crore for a 30,000-spindle facility,” said Chowdary.

As it is, the mills had to cut production by over 40 per cent in the last two years due to power supply curbs.

Published on August 18, 2013

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