Ashwin Chandra: China-plus one strategy will help India

A host of issues are afflicting the growth of Indian
spinning industry. In this interview, Ashwin Chandra, Chairman, The Southern India Mills’
Association (SIMA), delves into details of what is ailing
the spinning industry.

 

The increase in
cotton and yarn prices has become a major emerging issue for many spinners.
What are your thoughts on this? What kind of impact will this have?

Cotton cost accounts for 55-65% of the yarn prices
and its volatility is the root cause for the yarn price fluctuations. The
unprecedented Covid-19
pandemic lockdown restrictions imposed
by the Government forced spinning mills to come to a grinding halt for almost
two months from March to May 2020. The spinning mills started production only
in a phased manner with intermittent lockdown (whenever Covid-19 cases were reported) while the downstream
sectors especially the exporters reopened at a faster pace. Due to significant
increase in new orders the downstream sectors started buying yarn to increase
their inventories and this has created a supply-demand mismatch.

 

In
order to avoid the panic buying by the downstream sectors, The National
Committee on Textiles and Clothing (NCTC) has been making concerted efforts and
having continuous dialogue with all the regional associations and stakeholders
representing the entire value chain to manage the crisis for the past four
months. Against this background, the NCTC has launched a ‘Helpline Portal’ at Confederation
of Indian Textile Industry (CITI) for resolving yarn short supply issues and
also The Southern India Mills’ Association (SIMA) has come out with the ‘B2B
SIMA Model Code of Conduct for Yarn Trade’ to mitigate the unforeseen
supply-demand mismatch. Therefore, we hope the market would stabilise soon. In a free market economy, the market
dynamics would take its own course of time to reach stability in prices.

 

How would you
describe the current state of the Indian spinning industry?

Spinning sector, which is capital intensive, having
huge accumulation of TUF subsidies, has been facing severe financial crisis
during the last five years. Additionally, all the export benefits extended for
cotton yarn exports were withdrawn and currently it gets very nominal duty
drawback benefit. Despite this, spinning mills run at a lower capacity
utilisation due to the labour shortage and also shortage of polyester and
viscose fibres. Further, there is an increase in the raw material prices to the
tune of 74% in the international market and 31% in domestic market (immediately
after the industry was allowed to reopen after Covid-19 lockdown). The US
sanctions against Xinjiang products brought from December 1, 2020 has fuelled
the international cotton and yarn markets.

 

Spinning sector has been identified as highly
stressed sector by the Kamath Committee and the RBI in the recent period.
Spinning mills were selling yarn at 15-20% loss immediately after lockdown for
want of liquidity to pay wages, electricity and other standing charges and
incurred huge losses during the first three quarters of the financial year
2020-21.  

The spurt in demand (25-50% increase in export
orders) has created a panic situation. No capacity was added to the spinning
sector during the last few years due to the non-availability of TUF benefits,
export benefits and sluggish demand both in domestic and international markets.
We hope with increase in new orders for garments and made-ups, stronger demand,
mounting capacity pressures and strengthening business sentiments would help
the spinning segment to perform better in the near future.

Do you think
India is reaping the benefits of ‘China Plus One’?

Yes, India is the promising option in the light of
China-plus one strategy. The Covid-19 pandemic has aroused the interest for the
‘China
Plus One’ strategy to diversify manufacturing activities into other countries.
India stands out as an attractive option as it has larger domestic market,
skilled labour force, improving ease of doing business and a newly launched
production linked incentive scheme, which are proving to attract foreign
companies as a diversification option.