Spinning mills suffering loss of Rs 20-25 per kg of yarn: Industry body

Global crisis, interest rate hike, higher power tariffs and repayment of ECLGS loans among slew of factors to have taken a toll on sector, which now seeks govt relief

Lower demand due to the global financial crisis, rise in interest rates, revised power tariff, repayment of the Emergency Credit Line Guarantee Scheme (ECLGS) loans and unrestricted imports of yarn and fabrics from China, Bangladesh and Vietnam are leading to huge cash losses of Rs 20-25 per kilo gram of yarn, say spinning industry players.

According to Tamilnadu Spinning Mills Association (TASMA), over the past several months, bank interest rates have gradually risen from 7.75 per cent to 10.75 per cent, increasing the cost of yarn production by Rs 5 to Rs 6 per kg. The recent hike in Tamil Nadu electricity tariffs, current consumption charges, maximum demand charges, peak-hour charges and other indirect charges have added to the woes of the units, which are now seeking relief from the Central Government.

The industry body said that due to the sustained demand recession during the past three years, first due to the Covid pandemic and now due to the ongoing Russia-Ukraine war, though Indian units have all the capability to run their plants uninterrupted, they are unable to achieve full efficiency. Most units are working only at 25-30 per cent capacity levels. Due to this, companies are unable to repay their term loans in time and their working capital has also eroded.

“Hence, a general restructuring scheme may be announced with policy approval by the Reserve Bank of India, so that all banks take up restructuring of the accounts of the units immediately to prevent them from becoming NPAs. This is the need of the hour and must be taken up urgently,” said K Venkatachalam, chief advisor, TASMA.

During Covid, the Government of India provided short-term loans under the Emergency Credit Line Guarantee Scheme (ECLGS) to revive the industry. Entrepreneurs who availed these loans have used them to tide over the crisis and to repay bank dues, electricity charges, labour wages, etc. Repayment of the ECLGS loans, which has started, has become an additional burden for spinning mills. This also raised the cost of production by Rs 5 per kg, TASMA said. The industry body wants a six-month holiday and a seven-year repayment period at a lower rate of interest.

The cost of production has increased due to a spike in the cost of machinery, spares and electrical items, migration of labour and other indirect costs. Other than ECLGS restructuring, other appeals to the government by the industry include immediate reduction in the interest rates charged by banks to the previous level of 7.75 per cent.

“Considering the slowdown in the spinning industry, we request the government to extend the term loan with a two-year moratorium and restructure the existing term loan as given in the past. The Centre can take appropriate measures to promote the export of yarn and fabrics and take steps to monitor and prevent their import,” it added.