Tuesday, 24 February 2009

Indian textile sector in ventilator

Reprinted by




By RK Rishikesh Sinha, New Delhi

Last year among all the sectors that were badly hit by the squeezing of the global vis-à-vis the Indian economy, it was the textile sector. Its probable impact on the sector could be gauged from the fact that the government had to send a Save-Our-Soul message to determine the impact of job loss in this sector, followed with not one but two consecutive fiscal stimulus packages. 

Its irony that this has taken place on a sector that till July, 2008 was eulogized as a "Sunrise Sector", that will engage 17.37 million people alone up to 2012. However, coming to the end of the year 2008 it started showing the symptoms of a "Sunset” sector. 

The contribution of textile sector, according to the annual report 2007-08, is 14 per cent to industrial production, 4 per cent to the GDP, and 17 per cent to the country’s export earnings. 

The roller-coaster ride of the sector in the last fiscal came with the drastic erosion of its cost competitiveness that Indian textiles exporters had enjoyed in the US, EU and Canada, and also in the markets of U.A.E., Japan, Bangladesh and Turkey. The Index of Industrial Production (IIP) in this sector in September saw 4.9 per cent, in October it went to a negative territory registering minus 7.1 per cent. High input and transaction costs also bleed the sector profusely. 

The export basket that consists of items like cotton yarn and fabrics, man-made yarn and fabrics, wool and silk fabrics, made-ups and variety of garments, the ‘handicraft’ export dips negative 2.46 %. In the months April-May 2007 it was Rs. 812.55 crore while it was Rs. 833.05 crore in the same months in 2008. Natural silk yarn, fabrics and made-ups also registered negative 16.31 % growth from Rs 270.46 in April-May 2007 to Rs. 226.35 crore in the corresponding months in 2008. The export of textile based products in the month July-September 2008 saw 30 to 35 % dip. 

The negative growth of export in ‘handicraft’ is a matter of concern, especially for the North Eastern Region, since the area enjoys the highest concentration of handlooms in the country. According to 1995-96 Handloom Census, out of 25.4 lakh units engaged in handloom activities, 14.6 lakh units (household and non-house hold) are concentrated in Assam, Manipur, Arunachal Pradesh, Nagaland and Tripura. Of the 13.4 % contribution in the commercial looms of the country from these states, the total production of handloom fabric is merely 20 %. 

When things have been going wrong in the domestic and international markets, the condition of textile sector in the northeastern states is not away from anybody's guess. The sector in the region has been marred with difficulties in the absorption of funds, which has been posed as a greater impediment in the way of its growth. It includes delay in submission of proposals, non release of the States governments’ share in case of Centrally Sponsored Scheme and non-submission of utilization certificates, the absence of infrastructure facilities and of credible Non Government Organisations are other problems that infest the sector, hence the exports prospect originating from the region. 

The dip in the export prospects started happening at the time when the target set for the export of textile-based product for the year 2007-08 was US $ 25.06 billion, while the actual exports performance touched US $ 22 billion, as per the provisional figures. However, there has been an increase of US $ 2.3 billion compared to the exports performance in the year 2006-07. 

On the other hand, at the import front, it was not rosy, even. The import of raw jute declined minus 26 % from Rs 16.77 crore in April-May 2007 to Rs 12.41 crore in the same months in the year 2008. Notwithstanding, investments in the sector was also badly hit; there was a 66 % decline in investments in the period April-August 2008-09, compared to 2005-06. 

The textile sector which is the largest employer in the country with more than 3.5 crore workers, in November came out with a disturbing figure that in 6 months, 7 lakh workers had lost their jobs in the contraction of the global economy that had a cascading affect on the sector. And in the next 3 months, 12 lakh more jobs will be axed, the media reported. 

The ongoing eclipse in the sector all started from the beginning of the year 2007 when Indian rupee steeply appreciated against the US dollar. Seems it was not the end of bad news for the sector, before rupee started depreciating, the prices of the cotton skyrocketed into a new height, there was price increase of over 40 % in India within a period of less than 6 months ending September 2008. Exacerbating the sector more, increase in interest rates with steep power cuts also played a pivotal role. Inflation touched 13-year high 12.01% in the week ending 26 July, and the repo rate 9 per cent.

If there was any good news that came for the Northeastern states, it came in November, with the Government’s approval of the Comprehensive Development Scheme as a Central Sector Plan Scheme during the XI Five Year Plan. Under the scheme, Sibsagar in Assam, Varanasi and Moradabad in Uttar Pradesh, and Narasapur in Andhra Pradesh, were allocated Rs.70.00 crore each to meet the changing market demand both at domestic and international market and for technology up-gradation. 

The first fiscal stimulus package declared by Government on December with slew of measures like 2% interest rate subvention in pre-and post-shipment credit for textiles up to March 31, 2009; followed by infusing Rs 1,100 crore to ensure full refund of Terminal Excise duty/CST, also failed to bail out the shrinking sector. Other measures, the allocation of Rs 350 crore each for export incentive schemes and for back-up guarantee for ECGC for exports to difficult markets/products; service tax refund on foreign agent commissions of up to 10% of FOB value of exports, also botched to revive the sector. 

According to trade bodies, both the declared packages are negligible and insufficient compared to competing countries like China and Pakistan. The two packages ignored the two-year moratorium period demand for repayment of loans, enhancement of credit limit from three months to nine months, 2% increase in the interest subvention for export credit, that the industry was hoping was not addressed. 

It has further stated that to protect the textile industry a clear cut guideline is essential for availing two year moratorium for repayment of loans, lest it should become NPAs; along with it a special package for working capital is also required to manage the abrupt increase in the minimum support price for cotton.

Note: For republication/fair use of this article, do contact at rajkumarrishi1[at]gmail.com

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