Spinning mills in Tamil Nadu have incurred a loss of around Rs 5,000 crore in the last four months due to a drop in cotton and yarn prices, sudden glut and closure of dyeing units, among others.

The mills have now approached the state government to exempt or provide an optional route (as in the case of central excise) from VAT for a period of two years to enable the industry to avoid further closures and regain its competitiveness in the open market.
 
The increase in VAT by the Tamil Nadu government has become a last straw on the camels back, said J Thulasidharan, chairman of the Southern India Mills Association (SIMA). The increase in VAT rate on raw cotton from 4 per cent to 5 per cent would discourage any cotton development in the state as it is expensive for the mills since the CST is only two per cent, he added.

The spinning sector, which accounts for 47.5 per cent of the capacity and 60 per cent yarn export of the country, employs over 600,000 people. Thulasidharan said cotton-based textile industry in TN had been facing crisis for the last four months due to abnormal drop in cotton and yarn prices, sudden glut in the domestic and international markets, huge accumulation of yarn stock, closure of dyeing units in all textile clusters, including Tirupur, due to pollution, acute power shortage, etc.

He said the spinning mills in state were already in a disadvantageous position due to the absence of raw material base. The mills have to incur Rs 4-5 per kg for bringing cotton from states like Gujarat. Moreover, new investments in modernisation and greenfield projects had become dormant due to power shortage and high logistics cost.

Stating that huge spinning capacity was being created in cotton growing states, he said it was posing a threat to the state textile mills. The SIMA chief further said one per cent Market Committee fee on cotton and cotton waste was also an additional burden to the textile mills. 

In order to minimise the losses, the sector across the country had cut production by 35 per cent from May 24 and recently hundreds of small and medium mills stopped production 100 per cent.