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Textile crisis in Tamil Nadu : Things have never been as bad for the country’s textile heartland

The cotton textile industry of Tamil Nadu is unique for housing much of the country’s spinning capacity and also a significant part of downstream knitwear, powerloom and handloom units that use the yarn from the mills. And all this is notwithstanding the State not being a major producer of the white fibre itself. Consider the following.

Tamil Nadu consumes 47 per cent of India’s total cotton, with its mills accounting for 22.15 million out of the total spindleage of 47.89 million, and 2.87 lakh rotors of the total 7.6 lakh rotors in the country. The State also contributes 60 per cent of yarn exports from the country. Besides, it is home to Tirupur, India’s cotton knitwear and hosiery capital, not to speak of major powerloom and handloom clusters such as Salem, Erode, Bhavani, Namakkal and Coimbatore or Karur for home textiles. What is remarkable in all these is that Tamil Nadu produces not even five lakh bales out of the estimated 120-lakh bales annual cotton consumption requirement of its mills. So, it is largely a combination of native enterprise, unique skills sets and advantages of cluster development, built with time, that explains the State’s predominance in India’s cotton-based textile industry. But all these are now threatening to come apart, courtesy a series of adverse developments that have converged into a deadly cocktail during the last decade or so. That the industry is today in a state of flux is an understatement at best.

Freight Costs

The first issue has to do with the raw material — cotton — itself. Some 60-70 per cent of the State’s requirement is procured from Gujarat and Maharashtra, with Andhra Pradesh and Karnataka contributing smaller volumes. Till recently, sourcing cotton from outside or its pricing wasn’t really an impediment. However, consequent to the unusual increase in diesel prices in the last few years, the cost of transporting cotton from upcountry destinations has become unviable, especially for mills in the interior pockets of Tamil Nadu. Today, mills in competing countries, such as China and Bangladesh, are able to haul Indian cotton in vessels through the sea route at less than a quarter of what it costs mills located in Tamil Nadu or even in other major spinning clusters in the country. Detailed freight cost calculations for transporting cotton from Rajkot in Gujarat to a port in China via Mundra (inclusive of port handling charges) puts its at around Rs 1.34 a kg. This is as compared with Rs 4 for moving the fibre from Rajkot to Namakkal by road. The freight advantage has enabled China and Bangladesh to derive a huge competitive edge compared to the industry in Tamil Nadu (and much of India) in sourcing the cotton that is grown in India itself! It has led to mills here impressing upon the Government the need to levy a freight equalisation tax of at least Rs 2,500 a tonne on cotton exports, to set off what it considers as an unfair freight advantage.

Tamil Nadu mills now incur Rs 4-5 a kg for bringing and unloading cotton from Gujarat and Maharashtra. Ironically, this cotton that is spun into yarn by the mills is then sent back as yarn for weaving into cloth by powerlooms in Bhiwandi or Ichalkaranji in Maharashtra. It means spending an equal amount again on transporting processed cotton back to the States from where the white fibre was originally produced. That raises the question: What stops Tamil Nadu from producing its own cotton, considering that the yarn from the huge spinning capacities of its mills cannot be entirely consumed within the State?

Value Added Tax (VAT)

The VAT imposed by the State Government has been raised from 4 to 5%. It is a major impediment for cotton development, given that the corresponding central sales tax rate on cotton imported from other States is only 2 per cent. That makes it cheaper for mills to source cotton from outside, rather than from within Tamil Nadu, which levies a 5% VAT on raw cotton. On top of VAT, there is also a 1 per cent market committee fee on cotton and cotton waste, rendering sourcing of cotton from within the State all the more expensive. But high cotton cost is not the only problem. There are also other chickens coming home to roost now. Mills in the State are losing their competitive advantage in recent times on account of the rising cost and shortages of power as well as skilled labour. Spinning mills in Tamil Nadu are currently facing up to 50 per cent power shortages, which rules out utilisation of capital at the ideal 90% levels. As regards labour, the first aspect concerns wage costs. These have gone up because of general growth in labour demand from other industries as well, plus state welfare schemes from the Mahatma Gandhi National Rural Employment Guarantee Act, besides the provision of super-subsidised grains and other items through fair price shops. The industry, right or wrong, views these as having impacted work culture.

Rising Wages

The rural poor are no longer inclined to work just to eke out a bare living, thereby automatically putting upward pressure on the wages required to draw them to the mills. The second aspect relates to skills. Mills today are unable to get skilled workforce, with the skill gap widening at 50-60%. Attrition rates have also increased, and even those with minimal skills are up for grabs. The industry, while contending that it would be meaningless to invest huge sums on training, feels the need, though, to evolve a system for retention of their workforce. Here, there has been a combination of circumstances that have gone against the industry. Some three years ago, the Madras High Court ruled that the State Government has powers to fix minimum wages for apprentices in the textile industry, which, mills say, is peculiar to only Tamil Nadu. These, in turn, come to no less than Rs 250 a day for raw hands, and even at this rate, it isn’t easy to get people. Looking back, it is said that till the early 1990s, the mill worker was a much sought-after groom. Today, though, they are a condemned lot, which people attribute to the policy of de-licensing that led to newer mills springing up in rural areas. The wage bill in these units, mostly around Dindigul, was only 3-5% of their turnover, as opposed to the 12-18% for the established mills in Coimbatore. With time, the latter started to bleed, with manpower costs eating into their profits and forcing a churn. The mills that offered VRS packages to workers managed to somehow survive, while others had to simply shut down. In the process, the mill worker suffered erosion in both economic and social status. Today, the entire industry is in crisis, with high volatility in cotton and yarn prices; sudden glut in domestic as well as global markets, resulting in huge accumulation of yarn stocks, closure of dyeing units in Tirupur and Karur due to environmental reasons, and acute shortages of power and skilled labour. The spinning sector in Tamil Nadu, which alone employs six lakh workers, has incurred cash losses of more than Rs 7,500 cr in Jan-Sept. Since May, for the first time in history, there is a 35% production drop making the scenario pretty bleak.

Let’s hope there is some light at the end of the tunnel.

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