With a history that goes back many decades, Kolkata based TT Limited is riding high on its vertically integrated strength, posting in 2012-13 a turnover going up by 28% to Rs. 503 crore and now poised to touch Rs.750 crore this year. The company has managed to turn around and stabilize despite the slow global and Indian economy… Yet, the way the Government has ‘handled’ the textile industry is a matter of both concern and disappointment for Dr. Rikhab C. Jain, Chairman of the Group and a true stalwart.
In a freewheeling interaction with Team Apparel Online, R. C. Jain with his experience of more than 50 years of working over the entire textile chain – fibre to apparel, shares his thoughts on the problems that hamper the growth of the industry and also suggests some probable solutions…
Excerpts from the interview:
AO: Why is there no consistency with regard to cotton prices?
Rikhab C. Jain: The entire textile value chain, particularly cotton value chain, is suffering. It is a simple case of macro level mismanagement starting from farms to ginners, spinners, knitters/weavers, and garment exporters. Government is busy keeping all the segments happy, with little willingness to see the reality and do the rightful. Inter-sectoral conflicts by and large remain unresolved.
Unfortunately, Textile Ministry in India, in spite of representing the second largest industry, is dependent on sister ministries for clearances on almost every issue, for example for cotton it needs consent from Agriculture Ministry, for financial matters like subsidies, incentives, etc. it needs to go to Finance and Commerce Ministry; dyeing factories have to run after Environment Ministry. The Textile Ministry needs autonomy, higher empowerment and priorities in decisions.
Three years ago the Government banned cotton yarn export, which is one of the worst decisions ever made. What they should have done instead was to ban cotton exports, as then yarn prices would have automatically stabilized. Yarn mills had to face huge losses, as the business shifted to Pakistan. Unfortunately cotton prices worldwide fell during the same period, and the yarn inventories accumulated by mills had to be cleared at lower prices causing huge losses in the process.
[bleft]The company is going slow on fresh capital projects as though operations are stable at the moment, the environment still is uncertain with volatility on the raw material and currency front, hence focus is on the relatively stable, low capital intensive value added garment segment.[/bleft]
Today, China has piled up 3 years stock, and we don’t have even 2 months’ buffer stock. As a result, prices are bound to go up. Our suggestion was to keep minimum one year stock as buffer stock. The Government has allowed foreign companies to trade in cotton in India, who are cornering cotton in bulk to hike the prices and reap huge profits at the cost of mills and farmers.
AO: Why is the industry not taking a strong stand on this?
Rikhab C. Jain: The influence of textile industry’s lobby is zero, in spite of it being the oldest sector. This is because big business houses like Tata and Reliance have deserted this industry. Compared to us, countries like Pakistan, Bangladesh, and Vietnam give dedicated attention and focus to textile. Secondly, importance of textile is gradually coming down in the Indian economy as a contributor, further reducing the attention on the well-being of the industry.
AO: Is the industry also responsible for the condition it is in today?
Rikhab C. Jain: I would not blame the industry. If profit is less in a particular industry, it can’t attract investors. Industry people do not have the power to make rules, so we have to be dependent on the Government. The Textile Industry in India, excluding garments, is surviving on subsidies.
Even in China, Textile Industry is making losses. That’s why this sector has shifted out from US and Europe. Even countries like Korea, Japan or China don’t want any more spinning as the cotton MSP is really high in case of China and costs are continuously mounting.
AO: If China is exiting the spinning sector, would it bring that business to India?
Rikhab C. Jain: You would not believe that Gujarat cotton is cheaper in Shanghai and Beijing than in Coimbatore. Freight paid from Gujarat to Coimbatore is Rs. 6/- to Rs. 10/- per kg while the freight paid from Gujarat to Beijing is just US $ 70 for 23 tonnes that is just 20 paisa per kg. Additionally when you move cotton from Gujarat to Coimbatore, you have to pay 2% CST. Because of policies like these, Indian cotton is cheaper in China, Malaysia, Jakarta, Vietnam, than it is for Indian yarn manufacturers. On top of all even cotton fibre prices in India are higher than world prices.
AO: How do you see 2014 for the textile chain, will we be seeing a fluctuation in prices or would it be more stable?
Rikhab C. Jain: It is very difficult to say as we will be seeing a change in the Government. We can certainly presume that a normal inflation of 10% will be there, whoever may come in to power.
Cotton prices in India are higher than international prices. Today we have already come to a level where spinners have lost all their profit, cotton prices have gone up by 10% in last four weeks and various subsidies like Focus Market Scheme, even Incremental Export Scheme had been suspended (now restored). People find it better to import cotton than to use Indian cotton particularly South Indian Mills and Coastal Mills.
AO: What would be your suggestion for more stability?
Rikhab C. Jain: Government is taking the wrong route to help the farmers, the intermediates are minting all the money and the full benefit is not reaching the farmers. The correct approach to help the farmer is to work on increasing the cotton farm productivity. The present productivity is 500-600 kg of cotton per acre; it can go up by 2 to 3 times.
Secondly, price regulation of BT Seeds is important to make farmers comfortable. Seed companies are reaping gold today and farmer is feeling helpless. Don’t forget, if farmer has to pay extra for something, it eventually goes from our pocket. To add to all the pain, the Government is imposing unnecessarily market development fees of 2-3% in mandis, even when there is no corresponding service rendered.
One other area that is overlooked is that favours and subsidies in other sectors are eating into our profits. Out of 100 kg seed cotton “kapas” , you get about 33-34 kg fibre, and the remaining 2/3rd of seed is crushed for edible oil and oil-meals for animal. So a fibre grower can make good profit by sale of oil seeds at higher prices.
Yet India is the biggest importer of palm oil from countries like Malaysia and Indonesia. This oil costs just about Rs. 20-25 per kg as it enjoys 100% exemption from import duty. This destroys the oil mill industry’s prospects of India and consequently makes cotton fibre costly as oil seed sale realization is kept at the lowest level for years.
AO: A lot of spinning mills are coming up, is this good?
Rikhab C. Jain: This is a misconception. Gujarat and Maharashtra have taken a lead to give you zero interest investment. Even then, no big name is coming forward to set up a mill there. The mills which are coming up are involving ginners who are speculative people. It would meet the same fate as cotton bales, no profit.
Mills are not coming up in Tamil Nadu and Haryana; while UP has hardly one or two mills, Bihar, Assam and Orissa have no mills.
AO: Will we be losing the export market in favour of domestic?
Rikhab C. Jain: Not really. I think what China is doing now we will be doing in the next 10 years. Cotton export will not be banned by the Government, but as we can see Indian cotton prices are going up in comparison to world standard, soon export will stop. Handloom will die because of increased wages and disinclination of workers sons and daughters to take up their parents’ job.
AO: The garment exporters often argue that since they are the maximum value adding sector, the yarn required for their consumption should be kept separate from the exports…
Rikhab C. Jain: That is a wrong argument. If the exporters want to add value, who is holding them back? If yarn rates in India are high, why don’t they go ahead and import the yarn, it is duty-free. If Indian yarn is costly, they can import from a cheaper source.
The reality is that yarn price is not the deterrent. Exporters are suffering because of mismanagement. Earlier they were getting premium on quota sale, so they did not bother to even notice that the costs were increasing or fluctuating. They never bothered to increase their productivity.
There is so much of wasteful expenditure in the system. If you see textile related Government and semi Government offices, staff strength can be cut to size and it will still do the same job. The power loom training centres and the handloom training centres are just dispensing wages and salaries and doing nothing else. Same thing is happening in skill development centres, which are yet to deliver quality in their assignments. Just distribution of certificates will not be enough.
AO: Where do you see your company in next 10 years?
Rikhab C. Jain: I can’t position myself differently from my fellow travellers. I am on the same boat. We are trying to fill the gaps, but new gaps are created. Yet, we will continue to grow as a company, thanks to our planning and targeted efforts. We are not very keen to put up more spindles. We want to stop at a 50-50 balance between the domestic and export business. We also aim to pick up growth from garmenting rather than from spinning. Our turnover this financial will be around Rs. 750 crore, of which Rs. 200 crore is from garment sector alone.
