All the Indian cotton textile companies without exception having reported heavy losses throughout the year just gone by, the TextilesMinistry felt constrained to concede the industry demand for a comprehensive relief package to get over the crisis, including amoratorium 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 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. TheIndian 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.