This calls for a debate!
After much deliberation, the Indian Government has finally put a 720 million kg cap on cotton yarn export for the current fiscal year.
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What does this mean to the Indian Textile Industry?
The truth is, there is no shortage of cotton yarn in the country. During the last 3 weeks, yarn movement in the domestic sector was sluggish and stocks were piling up in most mills. With about 300K spindles being added every month, the cotton yarn production this fiscal would be 1 billion kg more than the last year, the cotton yarn output this year is expected to be more than 3 billion kg which is more than sufficient to meet the increased domestic requirement.
The government claims its action has been prompted by the need to meet growing domestic demand and an attempt to halt soaring price hikes.
“This decision will provide adequate domestic availability of cotton yarn and ensure price stability which will benefit millions of handloom weavers, knitwear industry, garment manufacturers and powerloom weavers,” a statement said.
According to the Confederation of Indian Textile Industry (CITI), yarn shipments will soar over the next 45 days as exporters try to push through deliveries that would have normally taken place during four months up to end March 2011.
Consequently, spinning mills will be motivated to divert supplies from domestic market to export markets during this period, reducing availability for domestic consumers of yarn in the immediate term. Besides, this restriction will lead to a hike in international prices for cotton yarn, since India is currently the largest supplier to global markets. Other major exporters such as Pakistan, Turkey and Indonesia will benefit from this price increase too, at India’s cost.
Interestingly, after the above 45 days limit the Indian spinners may face a glut of cotton yarn, since domestic consumption cannot meet cotton yarn production!
Furthermore, from January to March 2011, no cotton yarn will be supplied to overseas customers, affecting their reputation as well as that of India as a reliable supplier. Many mills focusing on specialty and value added yarns will be in problem, since there is no domestic market for these yarns.
The Confederation wants the government to reconsider its decision. We have to wait and watch the developments because the Indian government’s actions are discriminatory and violate Article XI of the GATT agreement which prohibits export bans that benefit domestic industries, according to some international observers.
Indian spinners, too, believe the measure will see them lose export customers to competitors such as Pakistan, China, Indonesia and Bangladesh, and this business may not return once exports are resumed after April 2011.
On the other hand, Premal Udani, chairman of the Apparel Export Promotion Council (AEPC) believes the decision to cap cotton yarn exports is already benefiting local firms. “As expected, prices of yarn and fabrics have started softening and availability is also improving.”
Competitiveness of the Indian fabric and garment industry
Many experts believe that the issue of concern was increase in yarn prices, which was mainly because of the spiralling cotton prices during the last two months all over the world. The domestic sector should be prepared to pay international price for cotton and cotton yarn. This is also a question that while other countries are competing in the market despite the increased yarn prices, why Indian converters cannot do so? This is a very sensitive issue because the problem lies in the inherent incompetence of Indian industry, that needs a revolutionary change in its management styles.
This is the high time that the Indian Textile Industry focus on offering more value to the customers than offering their fabrics at the lowest possible price, just to keep the capacity booked. The Indian Textile Fabric industry is still mostly directed by push sales techniques and proper marketing is practiced by a very limited section of the industry. Perhaps the high cotton prices and pressures from customers will inspire the industry to be more competitive in the markets and that is a going to be good for the industry as a whole.
