High operational costs mar growth of spinning units in Punjab

Costly power, high taxes have drained out Rs 10,000 cr investments from the state, with no major expansion in spinning

The spinning industry of Punjab, which employs close to 400,000 persons and contributes 15.6% of the total yarn production of India is in a catch-22 situation. The exorbitant cost of power and taxes have, in the past few years, drained out an investment of about Rs 10,000 cr from Punjab and no major expansions in spinning have taken place here.

In the last few years, textile giants of Punjab that include, Oswal Group, SEL Manufacturing, Abhishek Industries Limited and Nahar Industrial Enterprise Limited set up their mills in Madhya Pradesh as the state government offered 5%-6% interest subvention. The average per unit power tariff in Madhya Pradesh is close to Rs 5.50 per unit as compared to Rs 8.25 in Punjab.

The Punjab spinning industry had been demanding the rollback of 6.5% VAT on cotton yarn to provide a level playing field. The state government, instead of offering any relief to the languishing industry, revised the Infrastructure Development cess from 5% to 13% w.e.f. 1st July.

Power is the major cost component of spinning sector as constitutes one-third of the total manufacturing cost.

The landed average cost of power is the highest in Punjab (Rs 8.25 per unit) against Rs 5.50 per unit in Madhya Pradesh and 5.50 per unit in Rajasthan.

In the last five years the big textile players of Punjab have parked over Rs 10,000 cr of investments in the other states.

Vardhman Group has invested about Rs 2,500 cr in Madhya Pradesh. Abhishek Industries Limited put up units worth Rs 3,000 cr. Nahar Industrial Enterprise Limited and SEL Manufacturing Limited, each invested Rs 2,000 cr in Madhya Pradesh.

Punjab increased its spindlage from 2.3 million in year 2010 to 3.2 million in 2014. Whereas total spindle capacity added pan India was 10 million tonne in the same period. The share of Punjab squeezed due to high cost of land (about Rs 1 cr an acre) as the land is fertile and cultivable. The states of Madhya Pradesh offered interest subvention if 5%to 6% on the loans under TUF (Technology Up gradation Fund).

Two entities that added capacities in Punjab in the last three years Garg Acrylics with 2 lakh spindles and Sportking with 1.25 lakh spindles are now feeling betrayed the state government as they were promised VAT exemption and that has not been implemented, apprised the promoters.

Out of 138 spinning mills in the state close to 80 are operational. Others are either sick, closed or under corporate debt restructuring.

Increase in cotton yarn export over the past few years (from 589 million kilograms in FY 10-11 to 1,107 million kilograms in FY 13-14) has changed the perceptions and the spinners prefer to be located in regions closer to ports much to the disadvantage of Punjab.

The growth of Industry may stagnate further if the government does not plan to revive the existing industry with comparable eco-system provided in other parts of the country.

The fall in Chinese demand of cotton yarn has accentuated the challenges of the spinners this year. The excess capacities created by the spinners in anticipation of growth of export demand has resulted in huge inventories. The realisations of smaller mills may be compressed due to limited negotiating strength.