India has reduced hank yarn obligation from 40 to 30 per cent. The decision is expected to help spinning mills. As a result of the reduction in the obligatory quantity, the premium on hank yarn transfer will also get reduced thus helping spinning mills to reduce their cost.

In 2003, the hank yarn obligation was reduced from 50 per cent to 40 per cent. The Hank Yarn Obligation Scheme was introduced in 1963 and it directed mills to pack 50 per cent of the domestic weaving yarn delivery in hank form. The obligation was fixed based on the spinning capacity then existing, the handloom capacity and the power loom capacity and the demand for cotton yarn from both the handloom and power loom sectors.

Due to the labour shortage, increase in yarn production capacity, and technology upgradation the need for hank yarn has come down drastically. Also, due to the closure of hank dyeing units following the stringent norms of pollution control boards, the hank yarn requirement has come down sizably. Spinning mills which have a shortage of the obligatory quantity are forced to use the transfer facility from mills that produce in excess quantity and pay an exorbitant premium to fulfil the obligation.