Interest subvention for spinning industry, needed: Study

While it is generally believed that the textile spinning sector is more organised and does not need much support, the highlights of a study by CRISIL (Credit Rating Information Services of India Limited) notes that “without interest subvention, the financial stress on spinning mills would continue and intensify in the case of small and medium sized units that account for a major share of the installed capacity. This in turn would have a deleterious effect on cotton offtake from ginners and end up hurting India’s cotton farmers.”

Texpreneurs Forum, which had engaged Crisil to conduct the study, submitted this interim report to the powers-that-be at the Centre last week.

Returning to his hometown and sharing the study with Business Line, Prabhu Damodaran, Secretary Texpreneurs Forum, said “this is only an interim report. The Government is keen to understand how the industry can become sustainable in the long run without such intervention. The task has been assigned to CRISIL. A holistic report would be prepared and submitted to the Government within the next 6 to 8 weeks.”

Meanwhile, the report notes that nearly 81 per cent of the 289 spinning mills in the CRISIL-rated universe had a non-investment grade rating.

The cotton textiles segment accounts for 4 per cent of the total bank credit to the industry and the recent jump in the NPAs in the sector – a matter a concern. If the trend continues, it is very likely that the interest coverage ratio will deteriorate particularly for the small and medium-sized mills and the leverage ratios will turn increasingly unsustainable for many. Ginners, weavers, powerlooms and readymade garment sector would be adversely affected. The need of the hour is to enhance the competitiveness of the spinning sector in the wake of tepid demand globally and increasing price competition.

The report highlighted thus and surmised that the Government by giving this (interest subvention) sop to the spinning sector would not only lower the industry’s cost, but improve the sector’s competitiveness in cotton yarn and exports as well.

The policy framework for textile exports should aim to boost export of value added products such as cotton yarn rather than raw material (cotton) exports, countries importing cotton yarn are much more than those importing cotton, the study said.