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Domestic textile cos on the prowl to grab American pie
India's textile exports to the US grew by 19.3% in April 2006, helping it capture a marketshare of almost 7%. From acquiring brands abroad to tie-ups to expanding capacities, domestic textile companies are leaving no stone unturned to grab a neat pie in the US.
Against this backdrop, will the government's announcement on TUFS withdrawal impede growth plans of the industry? According to a Karvy report, the textile sector has off late seen lot of investments in the weaving segment. The feed stock for weaving industry is yarn, which is a high capital intensive and low margin business. The average margins here range between 5% and 8%. The TUFS subsidy made viable for these yarn companies to go for expansions when interest rates prevailing in the market were at its all time low. In a scenario where new expansion become difficult in yarn segment, then there will be shortage of yarn to commensurate with the weaving requirement, which witll push the yarn prices up. This will force the weaving companies either to increase the prices or take a hit on their margins. If prices are increased it will have impact on the garment prices and garment industry will see their exports declining
Till 30th April, 2006, the total loan amount sanctioned under TUFS stood at Rs 180.34 billion. While the total amount disbursed stood at Rs 117.74 billion. The amount sanctioned was against the total project cost of Rs 397.29 billion. The Government has estimated that the whole textile sector will require around Rs 1400 billion of investments to make the sector competitive to tap the global textile market and achieve the targeted export of $ 40 billion by 2010.
