India’s textile industry, heavily reliant on cotton, finds itself in dire straits due to a confluence of global factors. A significant drop in demand, courtesy of the prolonged Ukraine-Russia conflict and economic slowdown in major markets like the EU and the USA, has taken a toll. On top of this, an 11 per cent import duty on cotton and the repercussions of MMF Quality Control Orders have made indigenous cotton traders and MMF producers uncompetitive globally.
Between April 2022 and August 2023, textile exports plummeted by 19 per cent, with cotton textile and yarn exports taking a massive hit at 24 per cent and 46 per cent respectively. This crisis has forced spinning mills, especially SMEs, to slash production by 30-40 per cent, leading many to face financial ruin and potential NPAs.
In response to this dire situation, a delegation from The Southern India Mills’ Association (SIMA) met Finance Minister Nirmala Sitharaman on 3rd October 2023. They appealed for the conversion of short-term loans provided under the ECGLS (Emergency Credit Line Guarantee Scheme) from three years to six years. This extension, they argue, would alleviate the financial burden on textile units and prevent them from becoming NPAs, benefitting both the industry and financial institutions.
Chairman S.K. Sundararaman highlighted the precarious position of spinning mills in South India, especially in Tamil Nadu, which accounts for 45 per cent of production capacity. The mills face escalating costs, from procuring raw materials in Gujarat and Maharashtra to selling products in other states. Power tariff hikes further strain their budget, constituting over 40 per cent of the total manufacturing cost.
The import duty on cotton has made Indian cotton 10-15 per cent costlier, diminishing global competitiveness. He has said that the exporters have to forego RoDTEP (Remission of Duties or Taxes on Export Products) export benefit while importing cotton under Advance Authorization Scheme, which has also curtailed the global competitiveness of the cotton textile exports. He has said that India has become a cotton deficit country from the status of cotton surplus country and the country would need around 400 lakh bales of cotton (170 kgs) for the current spinning and downstream sectors capacity when the market revives and would require more cotton in the coming years to achieve the envisaged textile business size of US $ 350 billion including US $100 billion exports by 2030.
Sundararaman has appealed to the Government to exempt the cotton from 11 per cent import duty during April to October (off-season) as was done during the cotton seasons 2021-22 that would enable win-win strategy for both the cotton farmers and the industry, thereby avoiding speculation of cotton prices by the trade.
Sundararaman has said that the country produces only around five lakh bales of Extra Long Staple cotton as against the requirement of 20 lakh bales. He has said that Indian exporters have established their market in the manufacture of superfine cotton textiles made out of Extra Long Staple Fibre particularly the PIMA cotton produced in USA and GIZA cotton produced in Egypt. He has said that the value addition in these cottons is around ten times and for several products, Indian ELS cotton like DCH 32 is blended with these cotton varieties, consequently increasing the value addition scope for Indian cotton.
SIMA Chairman thanked the Finance Minister for considering the plea made by the industry and introducing a separate HSN code in the recent Union Budget in order to specifically identify the imported ELS cotton, enabling implementation of specific policy measures or levying different rates of import duty including exemption for the said cotton fibre, as against the 11 per cent import duty prevailing on a generic basis for all types of imported cotton, considering the demand and supply scenario.
