Tamil Nadu is the hub for the textile industry; but many spilling mills are on the verge of collapse thanks to appreciation of the rupee, cotton price hike and labour and power shortage.

Many of the spinning mills in Tamil Nadu are facing closure and several mills have curtailed production as against the usual practice of working 24/7 round the year.

Among the reasons cited by the mills are hike in domestic cotton prices, appreciation of rupee value leading to stock piling of stocks, labour shortages and shortage of power.

"For the past two months, many mills are working only six days a week, some mills are forced to do away with one shift," says D Suresh Anand Kumar, Joint Secretary, the Southern India Mills Association.

Worse affected by shortage of labour are the mills of Coimbatore which are forced to get labour from neighbouring districts, according to K G Rajkumar, Managing Director Shree M T K Textiles Ltd.

The appreciation of the rupee value has created a chain reaction. On the one hand, exports have come to a grinding halt, which affects the garment and textile units. This in effect affects the weaving and spinning units because of lower uptake of yarn. Yarn prices have also come down as a result of this phenomenon and mills are flush with stocks.

Another reason cited for the slow off take of yarn is the power shortages in Mumbai and North India, which has seriously affected the production of weaving units in those places.

The three to four percent increase in cost of bank credit has also badly impacted the functioning of small spinning mills, according to P V Ramaswamy, Chief Executive of the South India Cotton Association.

"Banks go by balance sheet funding and ignore the working capital requirements of the mills. Banks could instead fund the units based on the commodity stock," Ramaswamy said.

The South India Small Spinners Association officials said that banks were raising PLR according to RBI policies and this has seriously affected the prospects of small spinners in Tamil Nadu who don't have access to timely credit.

Meanwhile, the spinners have alleged that despite a bumper crop, the domestic cotton prices are ruling high compared to international prices and they allege that a lobby is responsible for this state of affairs. "There is no parity between cotton prices and yarn sales or yarn prices. It keeps fluctuating. Cotton prices are fixed by world markets," according to Pravin Pujara, leading cotton broker in Coimbatore.

Outdated technologies of older spinning mills have also contributed to the present crisis according to S Venugopal, General Manager, Sree Laxmi Mills. Worker scarcity is acutely felt during the past two years and support from Tamil Nadu government is lacking in this regard, he said. Adamant stand of trade unions come in the way in modernizing the units.

It has now become difficult for older spinning mills to modernize as the Technology Upgradation Fund is to be modified after March 31, 2007 to provide more investment to weaving, processing and dyeing units. Moreover there is a huge backlog of payments under the TUF scheme and some mills have not received TUF funding for the past 21 months, SISSPA officials said.

However, SIMA is heavily lobbying to ensure more funds for spinning sector as it is vital for the survival of the industry, according to Suresh Anand Kumar of SIMA. The association has also impressed on the government regarding the high employment potential of this industry to get further modernization funds.

R Kuppuswamy, President and G Soundarrajan, Vice President, SISSPA told Commodity Online that Tamil Nadu is experiencing power cuts five times a day which has seriously affected the operations of the mills and more over the price of power is higher compared to Andhra Pradesh. SISSPA has urged the Union Government to allow duty free import of cotton and curb cotton exports.

Tamil Nadu is the hub for the textile industry in the global map and accounts for 45 percent of the country's spindleage.

Over one third of the investment made in textile sector in the last decade has come to Tamil Nadu. Despite the problems of the spinning and garment units in the state, Tamil Nadu leading position is not likely to be threatened in the near future.

"This is a transition period and there is a supply-demand mismatch. The present crisis is of a short term nature and there is no reason to grumble. Overall exports and investments in the sector are showing positive growth," PV Ramaswamy (SICA) said.