Unprecedented Hike in Cotton Prices Renders Textiles Business Unviable for Now
Moneylife Digital Team 27 May 2022
South India Spinners Association (all members unanimously), on 22 May 2022, announced that it has decided to close all mills. “The members will not buy cotton until the cotton price situation is conducive for sustainability of mills,” it says, stopping all procurement of cotton. It has cited a 53% rise in cotton prices and a 21% rise in yarn prices from January-May as the reasons behind the closure. Cotton prices have gone up from Rs75,000 per candy (356kg) in January 2022 to Rs1,15,000 now. During the same time, yarn prices have gone up from Rs328/kg to Rs399/kg.
(Source: Agriculture Ministry *Second Advanced Estimate by Cotton Advisory Board, One Bale = 170 Kg, Crop Year = October to September)
The main reasons behind this rise are: lower domestic cotton production, higher demand and increasing international prices. According to second advance estimates of cotton production by the ministry of agriculture, the country’s cotton output is estimated to decline by more than 3% to 34mn (million) bales in the 2021-22 crop year from 35mn bales in the previous year. About 5mn bales are expected to be shipped out. Large cotton traders and multinational companies (MNCs) purchased and stockpiled huge quantities of cotton. Some quantity has also been exported. As prices skyrocket, the smaller mills are unable to purchase cotton due to working capital shortages.
Earlier, on 16th and 17th May, textile units in Tiruppur, Karur and Erode (in Tamil Nadu) halted work to draw the attention of the Union government to high cotton and yarn prices. Thousands of units involved in export, import, production and manufacturing of textile products, announced that they will halt their work on these two days as part of the strike. 
M Raja Shanmugam, the president of Tiruppur Exporters’ Association (TEA), mentioned that the mills were working only to 40% of their capacity due to financial stress. The TEA has placed some demands before the Union government which include a temporary ban on exports of cotton and yarn, removal of cotton from the commodity trading list and bringing it under the Essential Commodities Act. 
Even Tamil Nadu chief minister (CM) MK Stalin wrote a letter to prime minister (PM) Narendra Modi flagging the disruptions faced by the textiles industry in the southern state and urged him to initiate measures to rein in the price rise. 
CM Stalin’s demands include immediate stock declaration for cotton and yarn be made mandatory for all spinning mills so that ginners and cotton traders can obtain actual data on cotton and yarn availability. 
He has further demanded that the cash credit limit of the spinning mills to purchase cotton could be extended up to eight months in a year and, similarly, margin money sought by the banks at 25% of purchase value may be reduced to 10% since banks are calculating the purchase stock value at lesser rates than the actual purchase and market rates.
Although it is the smaller mills in south India that are protesting, the situation remains grim everywhere. In the western region, in Maharashtra there are about 2.3mn power looms across Bhiwandi, Malegaon and Solapur—all of them have been badly affected. Ichalkaranji is home to 0.12mn power looms that produce 20mn metres of fabric on a daily basis while Maharashtra produces some 250mn metres every day. 
Satish Koshti, president, Ichalkaranji District Powerloom Association, said that units in the town preferred to remain shut since they could not afford the high cotton prices. The state’s power-loom sector employs over a million workers.
Even larger textiles companies find themselves in unenviable positions. Home textiles major Welspun India reported a 62% decline in consolidated net profit at Rs51.25 crore for Q4FY21-22. This came even though the consolidated total income during the quarter under review stood at Rs2,247.06 crore compared to Rs2,173.56 crore in the year-ago period. The management, for the past two quarters, has been mentioning the 'unprecedented' level of inflation in cotton prices and how maintaining margins has become a daily struggle. 
Welspun group chariman BK Goenka said, ''Historic highs in cotton and coal prices, global logistics disruptions and related impacts continue to put further pressure on the margin front.”
Another equipment manufacturer mentioned that orders from textiles firms have dried out as spinning yarn and knitting garments at the current cotton prices is becoming unviable for companies. 
In fact, in early May, the Apparel Export Promotion Council (AEPC) urged the government to take immediate measures amid a spike in raw materials prices to protect the competitiveness of Indian apparel exports in the global market. The Council pointed out that in the past 18 months, this hike in the prices of the yarn has been to the tune of about 100%, rising from Rs200/kg to Rs446/kg.    
The government, last month, waived the customs duty on cotton imports from April to September this year to cool prices. “While it was expected that this reduction in import duty will benefit the textile industry and keep prices low for cotton and subsequently cotton yarn for the apparel industry, however, that has not helped in cooling the prices," said Narendra Goenka, chairman of AEPC.
The textiles sector is a large source of exports and employment in India. India had shipped textiles, garments and allied products worth almost US$40bn (billion) in FY21-22, up 67% from a year before.  However, the Western buyers are now scouting for alternative sources due to high costs here. 
India’s share in bed-linen exports to the US has dropped from an average of 55% in 2021 to 44.85% in January 2022. In contrast, Pakistan’s share rose to 25.71% from 20% and China’s jumped to 19.37% from 12% during this period. India's textiles industry has around 45mn employed workers including 3.52mn handloom workers across the country. 
1 month ago
Why shouldn't the farmers get a chance to earn a bit more? We all know that in a market economy, supply and determine prices.
Replied to n_jajodia comment 1 month ago
Traders say that they are struggling daily to maintain margins. Last year they should have enjoyed bumper margins and cant ready to suffer even for 1 year. I think 1 or 2 yrs is the max as next yr we see more area comes under cotton. For farmers its once in decade and most of the time, they dont have any control on rains, seeds, pesticides, labor, selling price etc. First they have to see the good harvest and then they should be lucky enough to have good price in the market. They dont have unions or cartels to set the price considering the cost they incurred.
PACL: ED Attaches Property Worth Several Crores
IANS 20 May 2022
The enforcement directorate (ED) on Friday said that it has attached properties worth several crores of rupees belonging to some companies in connection with a money laundering case against PACL India Ltd.
While the...
Tata vs Mistry: SC Dismisses Review Petitions by Mistry against March 2021 Judgement
IANS 19 May 2022
The Supreme Court on Thursday dismissed review petitions filed on behalf of Cyrus Investments Pvt Ltd and Sterling Investments Pvt Ltd seeking review of the apex court's March 2021 judgement upholding Tata group's decision to remove...
Edtech platform Vedantu lays off 424 more employees
IANS 19 May 2022
Edtech platform Vedantu has laid off 424 more employees, nearly 7 per cent of its workforce, as the online education space shrinks in the country.
"There is no easy way to say this but I am truly sorry. Out of 5900 Vedans...
SC Agrees To List SFIO's Plea Challenging Delhi HC Relief to Sahara Group Companies
IANS 17 May 2022
The Supreme Court on Tuesday agreed to list a plea by SFIO (serious fraud investigation office) challenging a Delhi High Court (HC) order, which stayed the investigation into companies related to the Sahara group.
A plea...
Free Helpline
Legal Credit