Difficult Time For Textiles
Last week, 6000 owners of knitwear and allied industries shut the garment industry with lowering shutters and sitting on hunger strike. They demanded relief on rising cotton yarn prices for the last 10 months and the ban on its exports. The issues they were protesting were serious enough to create a loss of 120 crore in one day of the strike.
Rise in the input cotton and cotton yarn prices has caused increase in garments by 20% despite the pandemic. The government’s decision to have a uniform GST at 12% for the textile and the apparel sector caused discomfort. The governments decision was supported by the need to realign input costs, which were typically higher than the finished products. But a large section of the industry sees the GST decision, which will eventually raise the price of the fabrics, as an additional cost on the garment industry that is suffering on account of the volatility in cotton and cotton yarn prices. From January 1, 2022, consumers may have to pay 6 to 7 percent more on the readymade garments, which the industry anticipates, could cause a dip in the demand especially of the garments that cost under 1000. This means that 85% of the industry, mainly micro small and medium industries, will be the losers.
From January to November, yarn prices reportedly increased from Rs. 220 per kg to around Rs. 350 per kg. Cotton accounts for 80% of the yarn cost and yarn cost makes around 25% of the cost of garment and made-ups. This input price is in sync with the sharp increase in the international cotton prices, which are up by 74%. The impact of the increase in GST will end in the consumers paying up more.
Experts indicate that a decline in demand may have a long-lasting impact on the future of the textile industry. According to an OECD-FAO report on Agricultural Outlook 2021-30, India will continue to lead cotton production by contributing to around 25% of the global share in 2030. The import duty on cotton imposed by the government, too, had an impact on the prices.
There is a section in the value chain that blames the Cotton Corporation of India (CCI), which is in-charge of the procurement of cotton, for the price rise in cotton yarn in the domestic market. The protestors accused that the multinationals are making use of the CCI-procured cotton stocks in their favour by booking in advance with CCI on a huge volume basis. The industry body had sought government intervention in this regard. The association thinks CCI should supply to textile mills, mainly MSMEs directly rather than fixing a higher benchmark to the quantities, which may benefit corporate traders in cotton.
The Confederation of Indian Textile Industry also demanded the removal of the 5% basic customs duty and 5% agriculture infrastructure development cess levied on cotton import. The government is unlikely to intervene at the moment. Commerce and industry minister Piyush Goyal had made it clear the government would intervene only if the stakeholders “don’t trade and sell in a fair and free manner”. He also added “Resolve the cotton pricing issue in the spirit of collaboration rather than competition.”