Shishir Jaipuria Deputy Chairman Confederation of Indian Textiles Industry

Shishir JaipuriaDeputy ChairmanConfederation of Indian Textiles Industry

Textiles & Clothing Industry Sustaining Exports & Employment

FICCI, 21st November 20081

Textiles Production Slowdown IIP DataSource: CITI estimates from CSO data Annual growth in 2007-08 mostly was in first half!2

Y-o-Y percentage growth in IIPWeight age2007-082007-082008-092007-082008-09SeptemberApril-SeptemberCotton Textiles 51%4.3 4.9 -9.36.1-0.5Wool, Silk & MMF Textiles21%4.8 4.0 1.44.7-0.2Textile Products (including Garments)23%3.7 0.3 -1.93.23.8Vegetable Fibre Textiles (except cotton)5%33.1 4.8 -0.418.9-5.5Total Textile Sector100%5.5 3.2 -4.95.20.3

Employment ScenarioT&C Industry employs 35 million workers directly, as per CRISIL study.

1% decline in production will result in loss of nearly 3.5 lakh jobs.

7 lakh jobs are estimated to have been lost and another 5 lakh may be lost by March 2009.3

Performance of Textiles Units

Constraints

High raw material cost

High power cost

High interest cost

Delay in disbursement of government dues eroding working capital.

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Performance of Textiles Units Profitability5

Company Name% Change Q1 (2008-09 over 2007-08)% Change Q2 (2008-09 over 2007-08)Company Name% Change Q1 (2008-09 over 2007-08)% Change Q2 (2008-09 over 2007-08)Abhishek Ind -342-416Patspin India-544-7257Alok Ind -48-2Ramco Industries 5330Arvind Mills Ltd.-34-84Raymond Ltd.-875-21Ashima Ltd.-120-23RSWM-619-925Bannari Amman Spinning Mills-1940Ruby Mills1450Bombay Dyeing-370-828Sangam India Ltd.-228-246Century Enka50-48Skumar Nationwide2934Century Textiles & Industries Ltd.-42-60Shiva Texyarn-6-22GTN Textiles-61-398Shree Rajasthan Syntex-22746GTN Industries-743-2070Siyaram Silk Mills-55-35KG Denim-37103SRF Ltd.-1824Maral Overseas-28-119Sutlej Textiles-215-244Nahar Spinning-74-112Vardhman Textiles-8148Nitin Spinners-1905-11598Welspun India-92-97Source : BSE

Performance of Major Textile CompaniesFinancial results of 50 major textile companies listed in BSE:

Thus while turnover increased, profits became negative in Quarter 2. In the remaining 2 quarters, even turnover will decline.

For smaller units, already there is significant production loss.

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Declining Textiles Exports

Over 50 percent of textile products manufactured in the country is being exported.

USA, EU and Japan constitute over 60% of our textiles exports

USAs import of textile products from India during January-August 2008 declined by 1.56 percent in value terms, compared to the same period of 2007and for garments, the decline was higher at 4.80 percent.

The imports demand of Indian textiles in EU and Japan is declining on similar trend, though data is not available yet.

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Competitors StrategyChina

A 2-4 percent increase in the rates of VAT refund on T&C exports to take them to 13 per cent announced in July 2008 and in October, they increased it further to 14 percent.

Pakistan

R&D assistance to garment exporters at 6 percent;

5 percent refund of interest paid on loans for machinery purchase by T&C industry;

3 percent interest subvention for spinning industry; and

A two year moratorium on repayment of the principal amount and interest on term loans taken by the T&C industry.8

Govt. Decisions that Aggravated Crisis

Interest subvention of 4 percent on export credit withdrawn six months before its scheduled expiry;

A steep reduction of Draw Back Rates for T&C products;

An increase of 40 percent in Minimum Support Prices for cotton, which would prevent the moderation of cotton prices.

Provision of Rs.300 crore for TUFS in the Supplementary Budget, against the requirement of over Rs.2000 crore for clearing present backlog.9

Government Actions Required

Reinstate the interest subvention of 4 percent on export credit, at least for the initially announced period of up to 31st March 2009;

Reinstate the DBK rates reduced earlier;

Reimburse 4-6 % State level duties which are not refunded to exporters by either Central Govt. or State Govts;

Extend the post shipment validity of export credit to 180 days, in order to accommodate the payment crisis in international markets;

..continued10

Power IssuesEncourage captive generation byAbolishing customs and excise duties on liquid fuels for T&C industry. Reimbursing the cost difference between grid power and self generated power.

Provide gas to T&C units, wherever feasible, at Administered Price Mechanism rates.11

clear the backlog in TUFS assistance and other government dues; If sufficient funds cannot be provided immediately, ask banks to allow interest free loans against all Govt dues;

Allow a moratorium of two years on repayment of term loans taken by textiles and clothing industry and relax NPA norms to accommodate this; Extend the period for repayment of TUFS loans from the current 10 years to 12 years;..continue12Measures for Improving Liquidity

Measures for Addressing Cotton Problems

Enable mills to buy cotton by providing them working capital loans , at 7 percent interest at par with the rate applicable to agri products, against a margin of 10 percent and for a period of 9 months;Mandate Cotton Corporation of India to sell all procured cotton to Indian mills without holding it and creating an artificial shortage in the market;Mandate CCI to sell cotton to domestic mills at market price through auction or at a price equal to the f.o.b. export price available to it minus the cost of export involved.

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Benefits of Recommended PackageA possible loss of 10-12 lakh jobs can be averted or at least substantially reduced.Our market share in USA, EU and Japan.Huge investments made by the T&C industry in capacity building during the last few years can be saved from idling.The possibility of a large number of term loans turning into NPAs can be averted, which would otherwise cripple the banking sector.The decline in cotton consumption and the resultant farmers distress can be arrested.The important role of the T&C industry in the countrys economic and social development can be sustained.14

Thank You .

*Textile Sector has an overall weight of 10.9% in the General Index of Industrial Production and 13.7% of manufacturing sector; hence it is an important group in measuring the industrial production. Production in second half is generally lower, as seen from the data for 2007-08. Given the trend in September and the 6 months cumulation, this fiscal would see significantly negative growth.

*Note:The IIP ratio and present order position of exporters show that at least 4-5% of production will be lost this year.AS of now, most of the job losses are in badli workers of mills and in reduced production outsourcing by garmentors; but loss of core jobs of permanent employees will increase in the coming months.Notes: 1. Cotton prices in India are 20% higher than in international markets because of unreasonably high MSPs that prevent market forces to operate.2. Tamil Nadu that accounts for over 25% of all T&C production in India has a 40% power cut. Many other States also have power cuts of 25% or more. Self generation is three times costlier because of higher fuel prices.3. Rs.2000 crore of T&C industry is stuck with govt. in undisbursed TUFS assistance alone.Note: The situation becomes graver when viewed against the significantly negative profitability of last year.*Note: The international credit crisis aggravated further from September onwards. Therefore, performance during the remaining part of current fiscal will be more negative.Note: All these announcements were made from July 2008 onwards, when the international economic crisis became evident.Note: TUFS payments have been made only for the period upto September 2007. Since the next Budget is likely only by May-June, the backlog will grow to nearly 2 years, eating substantially into working capital.Note: Power shortage is likely to persist at least for some time. This is a major problem in many textile producing States. The suggested measures will ease the situation at least partly.Note: Working capital loans are now available for purchase of cotton for 3-4 months, against a margin of 25% and a PLR which is 13-14%.Given the high MSP and the financial position of mills, most of the cotton will have to be bought by CCI. If they do not offload the procured cotton, there will be an avoidable shortage of cotton in the domestic market in a situation of record production !