policy initiatives - Textile Magazine

THE
TEXTILE MAGAZINE
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Debt rescheduling indispensable
All the Indian cotton textile companies
without exception having reported heavy
losses throughout the year just gone by, the
Textiles Ministry felt constrained to concede
the industry demand for a comprehensive relief
package to get over the crisis, including
a moratorium on mills’ repayment of bank
loans and interest. In fact, the operating losses
of mills are more pronounced in the case
of cotton yarn and lower-end fabric manufacturers
due mainly to extreme volatility
in cotton prices making them more prone
to severe liquidity risks. The Government’s
erratic and unpredictable cotton and yarn
policy is largely to blame for the plight of
thousands of spinning mills. The mid-year
R. Natarajan,
Managing Editor & Publisher
announcement of a ceiling of 720 million kg of cotton yarn shipments,
which of course was lifted later, and the decision on export of an additional
10 lakh bales of cotton, besides the exportable surplus of 55 lakh bales,
added to the woes of mills. Higher inventories, coupled with liquidity pressures,
forced cotton textile mills to put off buying of high-cost cotton and
yarn. At one particular stage cotton prices shot by 40 per cent.
What has come as a morale-booster to the industry is the Centre’s proposal
to extend interest waiver on loans to those companies which were left
out under the subsidy scheme last year. Further, Fitch has rightly said that,
based on its study of working of mills faced with mounting cash losses,
immediate debt restructuring is indispensable. True, debt repayment capacity
of some companies has deteriorated further, leading to over-utilisation
of working capital limits. Debt restructuring has of course its drawbacks.
If, for instance, the extended moratorium on repayment of loans is made
available to all the companies, some of them needing no funds may also
opt for extension as done during the 2008-09 slowdown. Again, there is no
guarantee that debt rescheduling would yield the desired results in view of
the nagging uncertainties gripping the global economy, with its adverse
influence on the individual economies across the world.
As elsewhere, there is nothing to cheer on the domestic front too. The
Indian economy is on the slide with extremely poor stock market operations
pushing the Sensex to far below the 16000-level, a steady erosion in
the rupee value and the steep decline in aggregate exports, with the rate of
growth in December at just 6.7 per cent. Of immediate concern are the US
slowdown and the EU debt crisis, since the two regions together absorb
about 60 per cent of India’s textile exports.
52 nd
Anniversary
e d i t i o n
6 | The Textile Magazine jANUARY 2012