Textile entrepreneurs constitute SPV

To source cotton in a cost-effective manner using consortium approach

Abnormal fluctuations in the prices of cotton and its non-availability in adequate quantities due to alleged hoarding by middlemen involved in the trade have been a persistent problem grappled with by the textile sector over the last few years.

To overcome these bottlenecks, a group of textile entrepreneurs from Tirupur along with their counterparts in few other clusters in its hinterland have come together to constitute a Special Purpose Vehicle (SPV) named Cotton Sourcing Company Limited (COSCO).

Its functioning will be on a ‘consortium’ approach for collective sourcing of cotton in huge volumes which, in turn, can help the member mills in the SPV to get huge trade discounts as well as cash discounts due to upfront payment.

Since the SPV is framed under the Companies Act, 1956, the mills joining as its members will be allotted equity shares.

“At the moment, about 50 mills have already joined as members in the SPV,” sources in the SPV told The Hindu.

On the methodology in sourcing the cotton, the SPV’s technical advisor S. Dhananjayan said that purchase orders from member mills, accompanied by stand-by Letter of Credits (LCs) from their regular banks, would be collected initially.

“We will then identify the supplier/ginner of large cotton producing states like Gujarat, Andhra Pradesh and Maharashtra, who is capable of giving the SPV the required volumes at the lowest price,” he added.

This direct negotiation between the SPV and the supplier will avoid the end-user of cotton (i.e. textile sector) to negotiate the prices through middlemen.

The SPV sources added that it was also contemplated to bring cotton procured in large quantities from a ‘coastline state’ like Gujarat by sea mode to Tuticorin or Kochi port, instead of by road which can carry only smaller volumes, and thereby, ensure sizeable savings in the transportation cost of the raw material.

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