Sunday, 11 April 2010

Spinning Mills Vs. Garment Sector: Who will bear the Burden

This Article is related to Textile Industry in India

With the rising cotton yarn prices, the garment manufacturers are feeling the heat. Unable to pass on the price hike to the customers, they are turning back to the government for relief. The government has done its part by the following measures:

1. Government has withdrawn 7.67 percent DEPB Benefits for cotton yarn exports.

2. It has also introduced a cess on export of cotton yarn.

This step is take with the following assumptions:

a. Cotton yarn prices have increased because of rising export demands.

b. It is hampering the domestic garment producers and exporters.

c. While domestic markets are able to absorb the increased cost, recession hit West is unable to.

d. It is difficult to pass on the price increase to the customers.

But Will it lead to desirable results

Arguments against

a.  Social Argument: Spinning mills in the country have suffered huge losses during the last two years. They need to make some profits this year.

b. The problem could be solved by giving more assistance to the garment exports to absorb thee additional costs.

c. Less than 20% of cotton yarn produced get exported. Total exports of cotton yarn this year are less than that of last year.

d. The cut in DEPB will not affect much as long as the  global markets are able to absorb the additional costs.

e. The problem can also be solved by improving production efficiencies in Garment manufacturing units so that they can absorb the high yarn prices without passing them on to the customer.

f. It is not only raw-material prices that have gone up. Labor cost and power cost have also increased.

Arguments in Favour

a. In Tirupur, there is an 11% drop in shipments over last year of knitted fabrics.

b. Spinning mills have jacked up cotton yarn prices disproportionately vis-a-vis input costs. Thus eg. raw material prices have risen by 1.79%, but yarn prices have gone up by more than 10%.

What is your opinion ? Write your comments 

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