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Ashwin Chandra: China-plus one strategy will help India

May 01, 2021
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 Additionally, all the export benefits extended for cotton yarn exports were withdrawn and currently it gets very nominal duty drawback benefit.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.