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The recent revision in power tariff in Punjab has hit the spinning industry the most that is already battling with subdued demand and high cotton prices.
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. This is despite the state having an excess capacity of about 2,500 Mw in the peak demand season in the state. Punjab spinning industry had been demanding a rollback of 6.5% rollback of VAT on cotton yarn to provide a level playing field, the government on the other hand has raised the Infrastructure development cess on power from 5% to 13% effective from July this year.
The spinning industry of Punjab that employs close to four lakh persons and contributes 15.6% to the total yarn production of India is in a catch 22 situation. In the last five years the big textile players of Punjab have parked over Rs 10,000 cr of investments in the other states.
The policies of the state government, which are skewed towards the new investments ignoring the needs of the existing industries are held responsible forthe exodus of industry from Punjab.
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Vardhman Group has invested about Rs 2,500 crore in Madhya Pradesh. Abhishek Industries Limited put up units worth Rs 3,000 crore. Nahar Industrial Enterprise Limited and SEL Manufacturing Limited, each invested Rs 2,000 crore 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 was squeezed out 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 FY11 to 1,107 million kilograms in FY14) 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.
