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Manufacturing costs

The cost of manufacturing has been a major concern for the domestic textile industry which is shortly entering into the post-MFA regime. A recent comparative cost study carried out by the International Textile Manufacturers’ Federation has pointed out that the high power and borrowing costs have taken their toll on the Indian textile industry, placing it at a competitive disadvantage as compared to its counterparts in other competing countries. According to the survey, the cost of power for the Indian textile industry has been found to be the highest among the competitors. In case of spinning, the electricity cost in India is 21 per cent of the total cost of production, while the same in Indonesia is only six per cent and in the US 10 per cent. The share of electricity cost to the total manufacturing cost for Brazil is 11 per cent, while Korea 13 per cent as also Italy and Turkey 16 per cent each. In texturising, the share of electricity cost to the total manufacturing cost in India is 27 per cent as compared to 14 per cent in Brazil, 12 per cent in Indonesia, 13 per cent in the US, 15 per cent South Korea, 18 per cent, Turkey and 24 per cent in Italy. Similarly for weaving too, India has been found to be at a competitive disadvantage compared to its competitors due to high power cost. Not only the power cost is the highest in India, but the supply also is not regular. This adds to the cost further due to dependence on alternative source of power supply during non-supply.

The government should consider allowing textile units setting up captive power plants at concessional rates of interest. Apart from this, power cost in India varies from one state to another. This brings about unhealthy competition within the industry, resulting in lopsided development of production base without being truly driven by the economic factors. In the past years, we have already seen textile units shifting base in order to rationalise their input costs. But this has resolved the problem only to a certain extent. The survey also points out that in India, the interest incidence on capital as a percentage to cost of production for the spinning sector is as high as 29 per cent as against 14 per cent and 11 per cent in the US and Italy, respectively. The finance cost in India is still quite high even as significant reduction has taken place in the recent past. Even after, five per cent of interest subsidy given under the TUF scheme, the net interest rate comes to 9-11 per cent, which itself is high when compared to other countries. The government must take note of these issues and try to come out with a holistic solution. With this regard, there is also need to expedite the debt reconstruction fund since this will go a long way in reducing the overall cost of production.