Textile mills are pinning their hopes on the fourth quarter to ride over the third quarter impact of demonetisation. For this, industry is banking on the textile ministry’s move to allow mills to pay only 10 per cent of procurement money that has come as a breather.
According to industry, the move could ease production cost in the last quarter of the fiscal for textile mills. Add to that, the industry hopes orders for summer season of 2017 could also boost the fourth quarter results.
“We are hoping that the fourth quarter will be not as bad as the third quarter. We are yet to see an immediate impact of the recent move but we are also focusing more on exports which could help us boost the fourth quarter results. However, we are definitely sure that business would pick up in the first quarter of next financial year,” said Paritosh Aggarwal, Managing Director, Suryalakshmi Cotton Mills Limited.
Traditionally, while large traders and multinational cotton traders take advantage of hedging facility and cheaper funds, mills are unable to build adequate inventory and have been paying higher price for the cotton during the off season. More than 75 per cent of the cotton arrives the market during December to March and around Rs 60,000 crore is required to procure the seed cotton during this period. Since the ginning and spinning mills do not have such funds, the farmers invariably get lower price.
As a result, the cotton textile industry had been demanding the government to ensure cotton fibre security and stability in cotton prices so that both the farmers and the industry get benefited and remain competitive in the global market. Now, with the new union textile minister directing Cotton Corporation of India that normally procures cotton only when the prices crash below the minimum support price level to procure cotton on a commercial basis and supply to the mills, the textile industry has welcomed the move.
“The new terms and conditions of fully pressed bales of CCI facilitates the registered MSME textile units to procure cotton by paying only 10 per cent deposit money as against 20 per cent which is applicable only for the sale quantity of 30,000 bales and above. The deposit money up to 2999 bales is only 15 per cent. This would greatly help the MSME units which are starving for working capital fund in the post-demonetisation regime,” said M Senthilkumar, Chairman,The Southern India Mills’ Association (SIMA).
Senthilkumar further stated that earlier there was a difference in the free period ranging from 30 to 75 days and 75 days free period was available for the procurement of 15000 bales and above, which led to MSME textile units’ inability to derive much benefit out of CCI. “However, now the free period has been made uniform and fixed at 45 days which would again help the actual users and the MSME units,” he further stated.
According to the textile industry body, CCI might procure around 1.5 million bales and maintain an inventory of 500,000 bales so that stability in cotton price is maintained.
Meanwhile, the textile has also been requesting CCI to opt for coastal movement of bales between Gujarat and Tamil Nadu that would again yield considerable saving for the mills, of anywhere between 10 per cent 25 per cent in freight costs.
Source: Business Standard
