MSP hike, demonetisation, GST compounded crisis in textile industry: Mills’ association VP

10 September, 2019

Mukesh Tyagi is a senior vice president of the Northern India Textile Mills’ Association, or NITMA, an organisation that works as a link between small, medium and large textile industries and the government. According to NITMA, its members have a “combined turnover above Rs 50,000 crore.” On 20 August, the Indian Express carried an advertisement by NITMA that was titled “Indian Spinning Industry Facing Biggest Crisis, Resulting in Huge Job Losses.”

The advertisement said that an ongoing crisis had resulted in the “closure of approximately one third of spinning capacity across India,” and added that textile mills are “incurring huge cash losses.” It also said the industry would not be able to buy the upcoming cotton crop of about forty million bales worth Rs 80,000 crore. The association put out data which showed that the export of cotton yarn between April and June this year was 35 percent lower than last year’s exports for the same period. The advertisement added, “The Indian textile industry employing over 100 million directly and indirectly hereby seeks immediate attention of Government of India to prevent job losses and avoid the spinning industry from becoming Non Performing Assets.”

On 27 August, Sagar, a staff writer at The Caravan, spoke to Tyagi at his residence in Delhi. Tyagi explained what led to the crisis in the Indian textile industry and discussed what measures the industry would like to see from the government. “One of the reasons for [the liquidity crisis] was demonetisation,” Tyagi said. “When it happened, the [cash flow] that was there in the textile market was disrupted.”

Sagar: Could you explain the crisis in the textile industry that you highlighted through the newspaper advertisement?
Mukesh Tyagi: The first thing that comes in is the problem related to [the procurement of] raw material. The main raw material of our industry is cotton. Up to fifty to sixty percent fibre that is used in producing yarn in India is cotton, and our country is among the largest producers of cotton in the world. But since it is an agriculture commodity, the government has a role in its sale. The main reason for our crisis is the increase in the minimum support price of cotton by 25 to 28 percent, which was approved by the government last year. Never before was such hike done in one go, because it cannot be absorbed by the industry. The worry struck us last year, but we were hoping that the prices of cotton might go up in the global market as well. But, in the last four to six months, the prices have fallen sharply in global market. So the production cost of our yarn has gone up and our prices are now not viable in the international market.

So, today, China’s spinning industry that used to consume 40 percent yarn of our total export is not buying from us anymore. Their spinners are buying their own yarn which is cheaper than India’s. Also, countries like Vietnam, which is our competitor, do not have to bear 3.5 percent import duty, unlike us, to sell their cotton in China.

S: Won’t cotton farmers suffer if the minimum support price is reduced?
MT: In countries like China, the agriculture commodity market is purely demand driven. No government agencies buy it from the market. All the agriculture commodities are sold at the market price and if the farmers happen to receive less money than the minimum support price, the government there transfers [the difference] directly to the farmers’ bank accounts. We have appealed to the government that this system should be brought in India too. We are not against the increase in the MSP.

S: In a press release in July, NITMA said that the prices of yarn had gone up due to some structural issues. Can you elaborate?
MT: Earlier, there was no tax levied on our yarn, involving local as well as export transactions. Now, 5 percent GST [Goods and Services Tax] has been introduced on yarn and fabric too. But, the GST has not subsumed all kinds of other taxes. For instance, we don’t get refund on 2.5 percent mandi tax that is levied when cotton comes to the mandi [an agricultural produce market], since it is not yet subsumed under GST. Then, electricity duty of around 50 paise to one rupee on per unit consumption also does not come under GST.

Also, excise duty and the VAT [Value-added Tax] that is levied on petroleum products have not been subsumed under GST. We spend a lot on transportation of raw material. So, in total, around 5 percent taxes are added to our cost. So we want the government to refund us all these taxes under the RoCSTL scheme. [The Rebate on State and Central Taxes and Levies is a government scheme that allows reimbursement on indirect taxes.]

S: Why were you compelled to come out in public about your grievance with the government?
MT: Our talks with government have been continuous. Our complaint is against the media. Today if you look at any print or TV media, they are all talking of slowdown in auto and real-estate industries only. The media covers only those industries whose stakes in share market are high. Around ten crore people are working in the textile industry directly or indirectly, if you include farmers too. But when the media talks of job loss, it does not cover our industry.

S: But, isn’t the government supposed to help your industry and not media?
MT: Yes. But, if our problem stays on a public platform, things move fast. Because the media raised the issue of the auto industry constantly, [the finance minister] Nirmala Sitharaman mentioned about it in her press conference [in Delhi on 23 August] and announced specific measures for it. If our problems were also regularly published in the newspapers, there might have been something for us as well in the press conference.

S: So you are saying the government is listening to your problems and it’s just media that isn’t?
MT: Yes, but the problems related to textile industry cannot be solved by the textile ministry alone. Our issues are also associated with the finance ministry, the commerce ministry and the agriculture ministry. Because of it, there is a delay in decision-making.

S: NITMA has also said that there is a liquidity crisis in the textile industry. Can you explain?
MT: One of the reasons for [the liquidity crisis] was demonetisation. When it happened, the [cash flow] that was there in the textile market was disrupted. Then, GST also happened. Because earlier there was no tax on fabric, many decentralised sectors [in the textile industry] now had to adjust with the new tax regime. Additionally, they also had to meet several compliances. They were all not very ready to understand all this. They are many who are not very educated in our industry; some of them had bare minimum education. A lot of people were stuck in understanding all these things for one-and-half years after GST was brought in. Also, a lot of funds remain stuck in GST [reimbursement]. But, I believe, GST was a good step.

However, I have no hesitation in saying that demonitisation was not a success. Almost the same amount of cash that was circulating in the market returned to banks, so I think the desired results were not achieved.

S: How is the cotton produce of other South Asian countries affecting the Indian cotton trade?
MT: We have the South Asian Free Trade Area agreement with countries like Bangladesh and Sri Lanka. Through these routes, garments, which are made of China’s fabric because it’s cheaper there, are coming to India. We have proposed to the government that their product should be brought in with certain conditions—that it should use our raw material. It should have our yarn and fabric.

Our internal garment industry is also bringing readymade garments from Bangladesh and selling here. This is also causing worry to us. We also want the government to enter into an agreement with China to have 3.5 percent import duty on Indian cotton waived. Pakistan and Vietnam are exempted from this duty in China. The talks have been going on for years, but it has not reached any conclusion.

This interview has been edited and condensed.