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Karnataka

Textile industry in Karnataka losing its sheen Business sense

More than 4,500 textile mills across the country were closed on July 9 in protest against the export of raw cotton, the industry’s most important raw material. The same day, the Government announced the removal of import duties on cotton, which would reduce the price of the raw material.

Significantly, this was not a strike by the entire textile industry. Only the composite textile mills — a term that is synonymous with the old textile mills — remained closed. In particular, the spinning mills in the country, numbering about 3,000, were closed down.

The garment industry, which has a significant presence in Bangalore, continued its operations, suggesting a significant break in ranks within what would be commonly understood to mean the textile industry. The reasons for the garment units, particularly those who are focussed on the export markets, are not difficult to understand. Their interests are diametrically opposed to those of the spinning mills, which supply yarn, the critical intermediate product in the textile industry. Yarn makers are against the export of cotton, which results in the escalating cost of their basic input, raw cotton. They are also against the cheap import of fabric, which would take away their market share. In contrast, garment units want cloth as cheap as possible, from the cheapest possible source.

Although the industry’s immediate reaction was one of relief, there are doubts about whether this would be enough to bring the industry back from the brink.

In Karnataka there is little doubt that the mill sector is in systematic decline. According to the Karnataka Textile Mill’s Association, the number of spindles in the State have declined from 11.75 lakhs in 1998 to about 4.84 lakh in 2008. During this period, the number of rotors employed in the spinning mills have halved — from 9,240 to 4696. Looms in mills in the State, which numbered a little over 3,000 ten years ago, have virtually disappeared.

Jobs in the textile industry numbered about 20,000 10 years ago; today there are only 6,000 workers employed in the 31 mills in the State. Davangere, a major textile centre, is now a shadow of its former self. Ten years ago there were 10 mills in the town; only two survive today.

Chairman of the KTMA C. Valliappa argues that more aggressive investor-friendly policies in other States have drawn investors there. Many of them have moved to Andhra Pradesh and Tamil Nadu, he notes. In particular, the high cost of power in the State, and its poor quality, has drawn investments into these States, he says. A Bangalore-based mill owner says new mills with a spindlage of 20 lakhs have been set up in Guntur in Andhra Pradesh recently.

Policy flip-flop

The government also announced the withdrawal of the export incentive in the form of duty drawback that was available for cotton exports at the rate of 1 per cent of the freight-on-board (FOB) value. The Central Board of Excise and Customs notified both decisions on June 9, but which are effective from June 8.

While cotton production in the country has risen by about 17 per cent in 2007-08 (315 lakh bales), exports have increased by about 72 per cent, from 58 lakh bales to 85 lakh bales. This resulted in a price spiral in the last year.

Although cotton imports have also increased — from 5.5 lakh bales in 2006-07 to 6.5 lakh bales in 2007-08 — the sharp increase in exports has drained availability of the product in the domestic market. This has resulted in prices increasing by more than 35 per cent in the last year.

Just two days before the announcement, Union Minster of Textiles Shankarsinh Vaghela said in Bangalore that the government would not curtail exports. He said this would be “against the interests of farmers, who benefit from cotton exports.”

Textile industry sources say that the move is unlikely to result in large-scale import of cotton. They point to the fact that cotton import is generally confined to premium long staple varieties. Only mills which use these varieties would benefit, said an industry source.

V. SRIDHAR

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