Cotton ginners across the country hit hard by the softening yarn demand, spiralling costs

Excerpt: Cotton ginners across the country are going through tough times. Faced with poor viability following reduced demand for yarn, and struggling to recover even their production costs.

Cotton ginners across the country are going through tough times. Faced with poor viability following reduced demand for yarn, and struggling to recover even their production costs.

In Gujarat, which has the largest number of ginning units in the country — it has 1,300 of India’s 4,300 mills — ginners are among the few MSMEs with a high incidence of non-performing assets (NPAs), bankers said. Industry experts say the problem lies in the market dynamics and misplaced policy priorities.

“The main reason behind the stress is the lack of price parity. Raw cotton — the raw material for ginners — is getting costlier, while yarn prices are not picking up due to lack of demand,” said Bhupendrasingh Rajpal, President of the Maharashtra Cotton Association. “Despite lower yarn prices, cotton prices are not going down because the MSP is hiked to protect farmers’ interests. Now the ginning business is suffering.”

“Ginning capacities in the country are double the crop size. Due to this, the industry faces idle capacities, hence the losses,” he added.

Ginned cotton currently fetches around Rs. 43,000 a candy (each of 356 kg), less than the production cost, estimated to be Rs. 44,000. This has pushed many to shut shop. Other units are operating at reduced capacity to meet running expenses and pay for interest. New ginning clusters had come up in Saurashtra, North Gujarat and Central Gujarat.

“Out of 1,300 mills, about one-fourth are operational, that too with reduced capacity utilisation. More units may shut down due to losses,” said Dilip Patel, a leading ginner at Kadi in North Gujarat.

The scene is no different in Karnataka and Telangana. The majority of the 350 units in Telangana are operating on a single shift and the lack of demand from textiles mills and MNCs has hit payment cycles, triggering a liquidity crunch, said B Ravinder Reddy of the Telangana Cotton Association. Ginners in the State plan to approach the government seeking sops such as the waiver of minimum fixed electricity charges, amounting to Rs. 1.75 lakh a mill a month, which has to be paid whether or not the mill is operational.

In Karnataka, about half of the 300 mills have already shut down owing to lack of business. In Raichur, about a third of the 39 units have not started operations this year, said Ramanuj Das Boob, who exited ginning to become a sourcing agent for MNCs. “The situation is going to be very bad this year on lack of demand,” he added.