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Industry experts apprehend distress sale due to lack of buyers
Cotton farmers might find themselves in a spot in the coming procurement season, as the textile industry is reeling under economic slowdown, which may well take a toll on private purchase in the market.
At the same time, the farmers are not keen to sell their produce to Cotton Corporation of India (CCI), as the latter is bound by the government order of making a direct purchase. The farmers had last year opposed direct purchase by the CCI, contending that they had an age-old bond with the arhtiyas (commission agents).
Talking to The Tribune, Bhagwan Bansal, former president of Punjab Cotton Factories and Ginners Association, said, “The textile industry is bearing the brunt of US-China trade war. The spinning mills in Malwa region are having a tough time as they are not finding any takers for yarn, primarily because countries like Bangladesh are offering yarn at a lower price. Almost all the spinning mills in the region have curtailed functioning to five days a week.”
He apprehended that some of these mills might even opt for closure, if the scenario remained bleak. He admitted that the private buyers might not be able to offer good price to the farmers for their cotton produce and the latter might have to resort to distress sale.
The association’s incumbent president, Suresh Bansal, said the Union Government must step in to address the crisis being faced by the textile industry. “In the prevailing scenario, I don’t see any possibility of the farmers getting anything beyond Rs 5,000 per quintal, although the MSP is Rs 5,450. The government agencies like the CCI won’t purchase through ‘arhtiyas’, leaving the farmers in the lurch,” he added.
Indian Cotton Association Limited president Mahesh Sharda said, “The situation may be grim, but I can assure you that the farmers will find buyers for their cotton produce. This gloomy scenario won’t last long.” He felt that a sudden increase of 28 per cent in cotton MSP had also contributed to the problem, as it was difficult for the industry to absorb such a massive hike. He hoped that the government would pitch in to announce some short-term relief measures. Former North India Cotton Association president Ashok Kapur said, “Usually the cash rich mills store cotton for their operations that run throughout the year. However, if the current situation persists, they may be compelled to run on hand-to-mouth basis without building the inventory.” He, however, was optimistic that the scenario might change before the cotton starts arriving in the region’s markets in October and the government might give a booster dose to the textile industry. He said they were expecting an estimated cotton production of 45 to 50 lakh bales in Punjab, Haryana and Rajasthan, of which Punjab was likely to contribute around 15 lakh bales. On the other hand, BKU Ugraha general secretary Sukhdev Singh Kokri Kalan said there was a dire need to bring out small farmers from the clutches of the arhtiyas and the government should give the farmers the only option of direct cash transfer for the sale of their produce to agencies like the CCI.
Source: The Tribune India
Looks like yarn mills are caught in a web of weakening demand and high raw material prices. For a country that exports nearly one-third of the yarn it spins, the 34.6 per cent year-on-year drop in exports between April and June does not bode well for mills. The domestic market was not encouraging either. Although there was positive offtake in April and May, prices in June fell 4 per cent year-on-year.
To the dismay of industry and analysts, the robust demand trend seen in the first three months of 2019 did not sustain. According to rating agency Icra Ltd, several factors explain the fall in India’s cotton yarn exports. This includes high price of cotton and yarn from Indian mills, duty-free access provided by China to Pakistan for import of yarn, continued competitive pressures from nations, such as Vietnam, and higher raw cotton
fibre imports by China, which is keeping its cotton availability situation comfortable for yarn mills.
At the root of the problem is high cotton prices. International cotton price has plunged 28.3 per cent in the past one year. In contrast, domestic prices have been firm during the period. Cotton futures have been steadily rising in the last seven trading sessions on speculation of lower output and productivity in the cotton season (2018-19). It is not surprising that spinning mills are weighed down by high raw cotton prices. Adding to this is the impact of tight liquidity faced by small and medium mills, which make up for a major portion of installed capacity.
Data from Capitaline on 39 spinning mills shows that net revenue in the June quarter contracted by about 7.4 per cent from the year-ago period. The average Ebitda (earnings before interest, tax, depreciation and amortization) as a percentage of sales also contracted by about 50 basis points, though many mills have been struggling.
With several global tensions persisting, especially between the two strong contenders in cotton textiles—the US and China—the outlook for India’s yarn exports in FY20 looks bleak. Reports from textile associations in India suggest stock pile-ups and production cuts by spinning mills in recent months.
This may have a cascading effect on the financial health of domestic mills, more so, if the problem persists. Jayanta Roy, senior vice-president and group head (corporate sector ratings) at Icra, said, “Based on the emerging trends, we have revised the credit outlook on the Indian cotton spinning industry to “negative,” as the profitability and debt coverage metrics are expected to moderate from the current levels. The impact is likely to be more pronounced for leveraged companies.” Given the tight liquidity scenario, a sudden change in yarn outlook is unlikely. One can only hope for a drop in domestic cotton prices with the onset of the new season. This could ease the pressure on spinning mills in the near term.
Source: The News Today
Textile push incentives aimed at boosting yarn, fabric sector after 35% fall in cotton yarn exports in Q1
The government has set up an inter-ministerial committee of secretaries to look at a new export incentive scheme especially for the yarn and fabric sector in the wake of a 35% decline in cotton yarn exports in the first quarter of FY20.
The committee has been set up after the Prime Minister’s Office (PMO) took stock of the Rebate of State and Central Taxes and Levies (RoSCTL) scheme and the textile industry’s demand to extend the scheme to other segments of the textile value chain, which is in place since March for the apparel and made-ups sector.
“An inter-ministerial committee has been set up to look at RoSCTL for all products including yarn, which is in trouble,” said an official in the know of the development. Exports of cotton yarn and fabrics declined 9.98% and 10.54%, respectively in July.
The development comes in the wake of the commerce department floating a cabinet note to replace the extant Merchandise Exports from India Scheme (MEIS), which was challenged by the US last year in WTO with RoSCTL for all exports in a phased manner. RoSCTL will allow reimbursement of duties on export inputs and indirect taxes via freely transferrable scrips. Scrips are incentives that can be used to pay duties. “Among textiles, cotton and viscose yarn are suffering. Cotton yarn exports attract 5-6% of embedded taxes, which are not refunded to the exporters at any stage,” said an industry representative requesting anonymity.
Moreover, the finance and commerce ministries are sparring over the phasing out of the MEIS and introduction of the new scheme, which is compliant with global trade norms. “India’s textile and apparel trade gap with China, which is also a member of the Regional Comprehensive Economic Partnership agreement, has widened because India is losing its share of cotton yarn to Vietnam and Pakistan due to lower cost,” the industry representative said.
Source: The Economic Times
The Union Cabinet liberalised foreign direct investment (FDI) rules in several sectors.
In single-brand retail trading, the definition of 30 per cent local sourcing norm has been relaxed and online sales permitted without prior opening of brick and mortar stores.
Welcoming India's latest Foreign Direct Investment (FDI) reforms, a top American business advocacy group on Thursday said New Delhi is making serious attempts to bring standards up to global norms.
The US India Strategic and Partnership Forum (USISPF) hailed the Narendra Modi government's move to allow 100 per cent foreign investment in coal mining and contract manufacturing, ease sourcing norms for single-brand retailers and allow online trade prior to opening of brick and mortar stores.
"We are delighted to see India's efforts to further liberalise the economy and attract foreign investment in order to return to the high growth path," said Mukesh Aghi, president of USISPF.
He said these efforts to create a level playing field for foreign investors by removing market access barriers will go a long way in buoying investor sentiment and revive manufacturing and job creation in India.
"Measures such as allowing FDI under automatic route in contract manufacturing and sale of coal, easing local sourcing norms for single-brand retail, allowing online trade prior to opening of brick and mortar stores are signs that the government is making serious attempts to bring India's standards up to global norms to improve the overall doing business environment," Aghi said.
Coming within a week of Finance Minister Nirmala Sitharaman unveiling a raft of measures to boost growth, the Union Cabinet liberalised foreign direct investment (FDI) rules in several sectors.
In the coal sector, now foreign players can invest 100 per cent for mining and sale of coal under automatic route. They will also be able to carry out other associated processing infrastructure related to the sector such as coal washery, crushing, coal handling, and separation (magnetic and non-magnetic).
In single-brand retail trading, the definition of 30 per cent local sourcing norm has been relaxed and online sales permitted without prior opening of brick and mortar stores.
Further, the government permitted 26 per cent overseas investments through approval route for uploading/ streaming of news and current affairs through digital media, on the lines of print media.
Source: The Economic Times
The rupee declined by 29 paise to close at 71.77 against the US dollar on Wednesday as fears of an impending global recession prompted investors to stick to safe-haven assets like the Japanese yen.
Rising crude oil prices and weakness in the equity market put further pressure on the domestic currency, forex dealers said.
At the interbank foreign exchange market, the rupee opened at 71.50 a dollar and went on to touch the day’s low of 71.87. It finally pared some losses to settle at 71.77, down by 29 paise against its previous close.
On Tuesday, the rupee had zoomed 54 paise to finish at 71.48.
Source: The Business Line
Non-food credit grew at 11.58% year-on-year (y-o-y) during the fortnight ended August 16, a 17-month low, data from Reserve Bank of India (RBI) showed. The growth in loans to individuals, farmers and companies was was 12.09% y-o-y in the previous fortnight.
However, deposits with the banking system grew by 10.15% y-o-y to Rs 126.80 lakh crore in the fortnight ended on August 16, a slightly faster pace than in the previous fortnight when it grew by a 10.08%. The credit deposit (CD) ratio for the fortnight remained at 75.84% the same as the previous fortnight.
Outstanding loans stood at Rs 96.17 lakh crore as on August 16, down from Rs 96.66 lakh crore in the previous fortnight. The estimated net liquidity surplus during the weeks ended August 08, 2019 and August 16, 2019 was Rs 1.4 lakh crore and between Rs 1.17 lakh crore and Rs 1.33 lakh crore, respectively, according to the CARE. The net liquidity surplus in the banking system has been over Rs 1 lakh crore since July 01, 2019, CARE said.
In the absence of adequate demand from companies, banks have been stepping up loans to individuals. In other words, retail credit has been growing faster but that too could slow, analysts believe. “Unsecured retail loans have contributed almost 25% in the incremental loan growth in the past three-four years for HDFC Bank but with the slowing consumption and high base impact, unsecured credit growth, especially personal loans, has come down to 25% y-o-y growth. The outlook for the corporate credit growth overall is also not very good,” according to a Nomura report.
Punjab National Bank’s loan book in the June quarter dropped 8% sequentially and remained flat as compared to the previous year quarter. The management said it will continue to focus on recoveries and conservation of capital.
Source: The Financial Express
Till now, four rounds of negotiations have been completed and the last one was held in March in Tehran where both countries discussed a draft text of the pact
Iran will soon sign a preferential tariff agreement with India that will slash tariffs on a large number of traded goods, Iranian ambassador to India Ali Chegeni said on Wednesday.
Many important items will be made zero duty as part of the deal, with a commitment to reduce tariffs on many others, he said, addressing Indian investors at the PHD Chamber of Commerce.
Till now, four rounds of negotiations have been completed and the last one was held in March in Tehran where both countries discussed a draft text of the pact. Sources said the next round will soon be held in New Delhi.
Along with the trade deal, a bilateral investment protection agreement and a double taxation avoidance agreement are also in the works and Iran is confident of signing off on all three deals by end-2019, diplomatic sources said.
Betting on trade
Bilateral trade stood at $17 billion in 2018-19 with exports from India at only $3.5 billion.
Apart from petroleum, major imports from Iran, include fertilisers and chemicals, while exports include cereals, tea, coffee, spices and organic chemicals.
India is the 5th largest source of imports for Iran, while being the 6th largest destination of exports. “While the majority of outbound trade from Iran continues to be crude oil and related items, non-oil exports from Iran to India rose by 18 per cent in 2018, as compared to the year before,” Economic Counsellor in the Iranian Embassy Asghar Omidi said.
While Indian exports of man-made textiles are slowly increasing, Indian companies have been unable to use market access in pharmaceuticals, according to the Federation of Indian Exports Organizations.
Tehran also remains hopeful of initiating a rupee trade mechanism with India, and later expanding it to include Russia, commerce department officials said. New Delhi had also been hopeful of using the domestic currency to pay for Iranian crude.
While experts and traders have suggested the mechanism as the best possible way to cut India’s dollar exposure as well as shore up the value of the rupee, which has continued to plummet, the recent sanctions have also put off optimism from India.
Investment tangle
Tehran continues to command the titles of the 2nd highest proven reserves of natural gas and 4th largest crude producer globally.
While Indian businesses are keen to capitalise on Iran’s 82-million market, the economic sanctions imposed by the United States that are currently in placehave dampened the mood.
As a result, Iran has instead channelised Indian interest in trade and investment into the Chabahar port, which remains outside the purview of sanctions.
“The more than 600-km long railway between Chabahar port and the major city of Zahedan will open by early-2021,” Chegeni said.
Overall, Iran maintains the sanctions to be unilateral and have been assured by India that New Delhi only recognises international sanctions and not those of a single country.
Iran has also made a bid to capture Indian investments in its infrastructure expansion programme spread across rail, road and port development.
It has also called for investments in food processing and renewable energy, particularly in solar and wind energy.
Source: The Business Standard
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With the imposition of 17% GST on the previously zero rated textile sector, FBR is looking at collecting Rs 600 billion from the sector and giving a refund of approximately Rs 480 billion on exports. This is only part of the story, there are many other misguided ways in which FBR is planning to increase revenue collection as a figure to symbolically meet the completely unrealistic target of collection of Rs 5.5 Trillion in 2019-20. Withdrawal of zero rating has impacted the system extremely negatively but there are equally if not more anti-business and illogical measures that are surely going to induce a complete shutdown of industry. For starters:
The additional cost of borrowing Rs 600 billion for the sales tax prior to refund is likely to be Rs 72 billion. This apart from being a cash drain is an unnecessary increase in the cost of production on which we already score dismally.
This is directly the consequence of the fact that approximately 70% of all the textile production of Pakistan is exported. This is further complicated by the structure of the industry which is fragmented with very few vertically integrated companies leading to multiple taxation of the same goods. Bulk of the textile output is from indirect exporters such as spinners, weavers, finishers etc whose products after finishing are finally exported. * A 4 percent withholding tax on every transaction within the sector will result in Rs 115 billion being permanently transferred to the Government from industry. Should the collection of 4% withholding tax continue, despite the clear interpretation in law, that it should not, in commercial terms this would mean a reduction of liquidity/working capital of the sector by further Rs 115 Billion. These are funds that sector does not have.
Being more than the profitability/margins of the great majority of the units in the textile chain this would directly cause these units closure leading to unemployment, lower GDP, and substantial reduction in Exports. In this connection FBR is invited to check and ascertain that the average profitability in this sector which under no circumstances can be 14% of turnover as a 4% withholding Tax translates to approximately a 14% profit on turnover. * Only 90 percent of input tax will be allowed to be set off against output and 10 percent
to be refunded 14 months later. This will also permanently transfer Rs 60 billion from industry to the government.
In commercial terms this means that 10% of all GST collected (1.7% of sale value) would remain permanently blocked with FBR as the refund provision kicks in only after a period of 1 year and two months. This translates into a permanent transfer of a float of Rs 60 billion from Industry to the coffers of government. This would directly cause further pressure on these units leading to closure, unemployment, lower GDP, and substantial reduction in exports. Coupled with the 4% withholding tax and the additional funds required to pay the 17% GST in the first place, there appears to be no chance of the Industry surviving the additional working capital requirement or the wiping out of the slim margins and the already low profitability. This will necessarily turn into a loss for the great majority of the registered and compliant units in the sector leading to their imminent closure.
Increase in Turnover tax to 1.5%
There are now over 60 withholding taxes and about 70% of revenue comes from them. These are extremely regressive in nature as they are applied to turnover and not on margins or profitability of the company and act as accelerators to hasten the demise of companies that could have survived a downturn turn in the market but cannot do so because of turnover taxes.
The fiscal measures taken in the budget are likely to hit the industry with an additional cash requirement of approximately Rs 800 billion plus. These are funds that the FBR is looking to collect additionally from the textile sector as part of their requirement to collect an additional Rs 1.5 Trillion this financial year to fulfill their completely unrealistic target of Rs 5.5 trillion this year.
The very interesting conclusion that can be derived from these measures is that the government must surely think that the industry is operating on net profitability of at least 20% Plus. This surely is not the case.
Given that such liquidity nor profitability exists in the sector, the current FBR strategy is a sure shot recipe to a monumental disaster. We are heading towards massive de-industrialization, a precipitous fall in exports and extremely unmanageable levels of unemployment. To complicate matters further, the government's well-intentioned but misguided documentation drive of seeking CNIC of all sales through registered, law abiding, taxpaying industries has not been accepted by the unregistered dealers and as a consequence all sales in the domestic sector have come to a standstill since 1st of August 2019. As a consequence there is no cash flow to pay wages salaries, utility bills, taxes etc
and according to all estimates will lead to a shutdown of 50% of the currently operating mills by the second week of September with the rest following soon.
This misguided ill-planned thrust for taxation and documentation has driven the economy to the ground and economic activity is now gasping for air.
Surely, the government's and FBR's intent is not to induce a forced closure of the sector. Taxing transactions beyond a simple GST is inefficient and counter-productive. The above measures are designed to kill transactions. There is a clear need to review and assess the lacunae in these measures and weed out those that are impeding transactions. We now fail to gauge the economic direction of the government, i.e., whether they want to promote industry, exports and employment or discourage it. The 17% S.T + 4% with I/T + 5% on utilities, 1.5% Turnover Tax and 15% mark up on the Rs 600 billion sales tax is far too great a liquidity drain and way beyond the profitability of the sector.
Source: The Business Recorder
The US-China trade dispute could lead to an influx of Chinese yarn, fabric and garments into Indonesia, potentially disrupting the so far stable levels of demand and supply in the country by pushing up supply, which would in turn depress prices and hurt local manufacturers, according to a new report released recently by Moody's Investors Service. Moody's explains that tariffs imposed by the United States on Chinese textile exports are 25 per cent versus the 10-15 per cent that Indonesia has implemented.
"The Indonesian textile companies that we rate are not immune to the dumping of
Chinese textile products in Indonesia, should it occur," says Stephanie Cheong, a Moody's analyst. "Nevertheless, these companies' credit profiles should stay stable over the next 12-18 months, because exports account for a high portion of their total sales, and because they
maintain long-standing customer relationships and produce a strong range of value-added products that are not easily replaced by imported manufactures," adds Cheong. Moody's pointed out in a press release that while there are fears that Chinese companies will redirect their textile products to Southeast Asia, including Indonesia, initial trade data estimates published by Bank Indonesia between January and June 2019 show that the year-over-year value of imports and exports has broadly held steady.
Source: Fibre2Fashion
The future of the textile industry will be more and more determined by Industry 4.0—also called Industrial Internet of Things for intelligent and integrated manufacturing—including smart services, according to Nicolai Strauch, head of public relations of the Verband Deutscher Maschinen -und Anlagenbau (VDMA), or the German Engineering Federation. In smart services, operations and factory—all part of Industry 4.0—key solutions are provided by the machinery industry. The other ones—from smart textile products, marketing, sales, employees to strategy and organisation—are specific know-how issues for textile mills, Strauch told Fibre2Fashion in an interview.
The textile production chain, from spinning to fabric production to finishing, has been capital-intensive rather than labour-intensive for decades. The labour-intensive tag is in production, especially in the garment manufacturing. Automation will increase in the near future in this sector as well, he added.
Founded in 1892, VDMA is the largest network organisation for mechanical engineering in Europe with more than 3,200 members.
Source: Fibre2Fashion
UK envoy stresses on the need to make 'attractive climate' for foreign companies to invest in India
Even as the economic gloom prevails in key industrial segments in the country, the British government is keenly looking to engage with India to develop an 'attractive climate' for the British companies to invest in the country.
The British High Commissioner to India Dominic Asquith commented on the Ease of Doing Business (EoDB) framework in the country saying that the United Kingdom "is keen to collaborate with the Indian government in its ambition to develop a business climate which makes it attractive for foreign British companies to invest here. The UK has a good record in Ease of Doing Business. It is important that we consider balance of interest in terms of investments in each-others' countries."
On his two-day visit to Ahmedabad, Asquith met the Gujarat Chief Minister Vijay Rupani and business leaders from the State to explore the common interest areas for knowledge sharing and investment prospects.
"Meeting with the chief minister was good and we discussed on common interests in the areas of urban development, healthcare, technology partnership including financial services that is coming up at GIFT City (IFSC)," Asquith said here on Tuesday.
The British government representative also underlined the areas of improvements in the dispute resolution structure for businesses. A "frustrating" delay in resolving the commercial disputes in the courts of law has been one of the areas of immediate concern for the British companies. A quicker process and system that speeds up resolution process and makes it easier for companies to achieve resolution would be mutually beneficial.
Economic concerns
Asquith also stressed that more than the economic indicators such as GDP growth rate, the companies consider factors such as EODB while making an investment decision.
"Indian economy may be growing at a lesser rate than seven per cent. But that isn't bad. The companies aren't looking at growth rate, more than that, they look at the EODB factors. The more those concerns are addressed, the more inflow of companies we see," he added.
On the Brexit concerns and its possible impact on the fresh investments in the UK, Asquith stated that some companies are delaying the investment decisions, which are more related to further expansions. "But it doesn't stop companies from investing in the
UK. In the last year alone we had 50 companies investing in the UK. The attraction of investing in UK is more among startups and innovators," he added.
Trade relations
Indicating a strong India-UK trade relations, Asquith stated that there are about 840 Indian companies currently invested in the UK, while about 440 UK companies have their investments in India.
Source: The Hindu Business Line
