Commodity Analysis

Viscose yarn puts Centre in a Catch-22

Rajalakshmi Nirmal | Updated on October 06, 2019 Published on October 06, 2019

Low import duty has resulted in increased dumping of the yarn in India. While spinners want this to stop, weavers want it to continue

The Indian textile sector already has problems aplenty — from loss of market share in export markets to slowing consumer demand in the domestic market. Now, one more has been added to the basket — cheap viscose yarn being dumped into the country.

At Pallipalayam near Erode in Tamil Nadu, which is the largest viscose cluster in India, the spinning mills are bleeding as they are having to sell their viscose yarn at dirt cheap prices. If this continues, spinning mills will soon have to bring their shutters down. Given that the 80-plus mills in Pallipalayam directly employ about 50,000 people, can they be left to die?

The going had been good for spinning mills as the demand for man-made fibre, especially viscose fibre, had been going up for the past four-five years, both in the domestic and the international market. But over the past nine months, the picture has changed dramatically with the global economic slowdown and the trade disputes between the US and China, resulting in excess stocks of viscose products in the market and a sharp drop in their prices.

With viscose yarn having low import duty in India, global producers started dumping it in India, hindering the business of domestic spinning mills.

Import of viscose yarn has increased exponentially in recent months. In 2018-19, imports per day was 54 tonnes; this increased to 93 tonnes in the first quarter of 2019-20 and to 170 tonnes in July and 259 tonnes in August.

In a spin

The duty differential between the fibre, yarn and the fabric of viscose is what is causing the dumping of yarn by other countries in India. While the import duty on viscose fabric is 20 per cent and that on viscose fibre is 18 per cent, the duty on viscose yarn is only 5 per cent.

Coupled with the cheap price of viscose yarn in the global market, the low import duty has prompted Indian weavers to prefer it over the yarn from domestic spinners and buy it from traders who import it in bulk from China or Indonesia.

Though the spinners continue to run their mills as they need to service the outstanding loans taken for capex in the last few years, they are incurring heavy losses, and are not sure of how long they can sustain.

With cost of input (viscose fibre — around ₹134/kg), plus the price paid for labour, power, maintenance, packing and administration, and adding to it depreciation, the cost of production of viscose yarn comes to ₹190/kg for domestic spinners, but they sell it at ₹170/kg. At the current level of turnover at the mills in Pallipalayam, the loss is about ₹60 crore a month for the cluster, claim the spinners.

There is no relief for the spinning mills even on the input front. The 18 per cent duty on imported viscose fibre rules out the option of using imported fibre. Grasim Industries, the only supplier of viscose fibre for the domestic spinners, has also not cut prices to the tune of the correction in the global price.

What’s the solution?

There are two things that can be done. One is to increase the duty on viscose yarn so that imports trickle down and weavers buy from domestic spinners. Alternatively, the duty on the fibre can be removed so that the spinning mills can get the benefit from cheaper inputs and save costs to make up for the loss in the price of the yarn.

But there is a challenge in executing both the options. If viscose yarn duty is increased sharply, weavers will protest. If fibre duty is removed, Grasim Industries, the single largest supplier of viscose fibre in the country, would suffer.

The Centre has to find an amicable solution by bringing all stake holders together — fibre manufacturers, spinning mills and weavers.

“Tweaking of duties at all the three stages will help all the value-chain manufacturers to protect themselves from dumping and it will also help the sector keep the prices competitive,” said Prabhu Damodaran, Convenor, Indian Texpreneurs Federation.

The duty on viscose fabric was increased to 20 per cent from 10 per cent in October 2017 to protect domestic weavers from Chinese imports. But the duty on viscose yarn, at 5 per cent, remained unchanged. Had the government increased the duty on yarn to 15 per cent then, it wouldn’t have caused an issue now, say spinners.

Published on October 06, 2019
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