FW
The spinning sector in India needs immediate attention. In view of the weak financial position and reduced cash flows, the sector needs immediate extension of interest subvention. A huge proportion of spinning mills in the country have a low non-investment grade rating that could deny them any scope for further borrowings from banks. This means, the financial health of the mills has been deteriorating and non-performing assets (NPA) rising.
Not only is profitability of spinning mills diminishing, the average EBITDA margins (earnings before interests, taxes, depreciation and amortization) declined sharply in the case of large mills from 14.8 per cent in 2013-14 to 11.3 per cent in 2014-15 fiscal. Similarly, EBITDA margins of small sized mills declined from 7.7 per cent in 2013-14 to 4.7 per cent in 2014-15.
Extending interest subvention would boost the prowess of labor-intensive spinning sector and reduce NPAs of public sector banks. Every additional Rs 10 lakh revenues in the spinning sector could generate employment for 16 more people.
As of December 2014, public sector banks reported gross NPA of 10 per cent of their advances to the cotton-based textile sector against five per cent registered in December 2012.
Only one per cent out of garment factories surveyed in Bangladesh have trade unions while 55 per cent don’t even have any participation committees. Some 643 factories were surveyed from January to March 2015. Of these, 356 are members of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and 129 are members of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) while 158 others don’t have affiliation with either of the two trade bodies.
However, 53 per cent of BGMEA factories and 43 per cent of BKMEA factories have participation committees. Participation committees comprise representatives from both factory owners and workers that, according to labor leaders, actually work in favor of owners.
Some 3,740 garment factories are now operating across the country. In 2013, the government amended the Bangladesh Labor Law, 2006, simplifying trade union formation for garment workers to bargain for their rights, amid pressure from local and international arenas, especially after the Rana Plaza building collapse.
Since then, more than 300 new trade unions have got government registration in the last two years, raising the total number to 427. Non-cooperation from owners, fear of losing jobs and some legal complexities are major reasons for the relatively low number of unions in the country’s readymade garment sector that employs some four million workers.
Cotton Council of India (CCI) has sold 6.68 lakh bales through e-auctions out of their procured stock of 86 lakh bales, while the Maharashtra Federation is holding a stock of 4.75 lakh bales procured by them. All India pressing figures till April 30, 2015 are approximately 336 lakh bales, while all India arrivals have dropped to approximately 40,000 bales per day. As per the report of Indian Cotton Federation (ICF), unsold stocks lying with ginners and traders are approximately 20 lakh bales. The increase in duty drawback for garments exporters from 6 to 7.5 per cent and for export of yarn which has been increased from 2.08 to 3.10 per cent will offer boost to industry, it said.
ICF noted that in Punjab, Haryana and Rajasthan, arrivals of cotton are insignificant as the season is at its end in this region. The price quoted for good J-34 r/g in Punjab is Rs 3,915 while in Haryana it is Rs 3,860 and in Rajasthan it is Rs 3,840 per maund spot. Cotton sowing has already begun and there is good demand from farmers for BT and conventional varieties as per reports from many tracts from Northern India.
Exports of raw cotton stands at approximately 50 lakh bales and CCI could release more stock to consuming mills to keep cotton lint prices steady. The CCEA has approved extra funds for government federations and CCI to meet losses on their MSP operations, adds the report. Farmer groups are of the view that the cotton area may not shrink during 2015-16 season as land conditioning has begun in many cotton producing states.
Suggesting the need for export interest subvention for spinning textile sector, credit rating agency Crisil has warned of a major crisis to farming community due to rising NPA levels in textile, falling EBITDA, Net Margin and fall in credit rating. Crisil’s interim report, prepared based on the request of Texpreneurs Forum and a copy of which was presented to the Commerce Minister Nirmala Sitharaman, further stated that if the same trend continues, in next stage, fall of spinning sector will lead to a major crisis to farming community, because every year cotton output is increasing in our country.
Commenting on a governmental view, the report says that government was of the opinion that spinning was well organised and well grown and self-sustainable, because of 2011-12 historic losses due to cotton volatility and subsequent development in China in the last two years and also new capacity addition in spinning sector, created big trouble in finances of ‘stand alone spinning mills.’
Cotton as commodity only has limited export potential, because only 10 countries will import cotton, the report said in case of yarn, export potential was more as it can be exported to more than 60 countries, indicating that cotton farming is also directly linked with the health of spinning industry.
Pakistan's textile exports have started showing progress in the EU due to its GSP plus facility. Exports have recorded an increase, especially in apparels by 24 per cent in volume and 30 per cent in value terms from January to December 2014. The European Union has granted Generalised System of Preferences Plus (GSP Plus) status to Pakistan from January 1, 2014 for 10 years.
The GSP Plus status allows almost 20 per cent of Pakistani exports to enter the EU market at zero tariff and 70 per cent at preferential rates. EU trade concessions will benefit Pakistan’s textile and clothing industry to compete with those of regional rivals like Bangladesh, which already have duty-free access to the bloc’s market. The increase in exports is expected to facilitate economic growth and help in generation of additional employment.
GSP Plus status is extended to countries that have applied for the tariff scheme and implemented the 27 international ratified conventions. GSP Plus is granted to those countries that ratify and implement international conventions relating to human and labor rights, environment and good governance. The preferential trade status is subject to review every two years. GSP is a facility granted to developing countries by certain developed countries. It is not negotiated with them. The preferential treatment is non-reciprocal.
Bangladesh will increase tax at source on export proceeds from the apparel sector in the coming fiscal year. The rationale is: the sector receives a lot of benefits from the government and now it is time for exporters to give back -- at least something. The tax at source on export receipts had been reduced to 0.3 per cent for this fiscal from 0.8 per cent in the previous one.
If the rate is increased, the government feels it can collect a large amount of revenue from the sector. Day laborers and people with low income are seen to be the segments hit the hardest by inflation. The government will review subsidy allocations for different sectors, including garments. It will rationalise subsidy allocation and, possibly, there will be changes in the distribution and measures to avoid its abuse. Considering the limited resources, there will be a review of the issue of cash incentives.
Since the garment sector enjoys half of the total cash incentives, there is a feeling the thrust sectors should get these facilities. The size of the budget has increased by 18 per cent in the last five years, but real growth will be just around 10 per cent if inflation is taken into account.
Garment manufacturers and exporters in Bangladesh say Accord is involved in wrongdoing against a number of country’s apparel factories. They say, the EU entity is getting involved in labor management issues to create problems with factory management and engaging in activities beyond the purview of worker safety.
Accord on Fire and Building Safety in Bangladesh is a platform of European Union retailers. Alliance for Bangladesh Worker Safety is an entity of North American buyers. Accord and Alliance were formed following the Rana Plaza collapse.
There are allegations the Accord platform is threatening to declare some factories non-compliant, which is destroying export business. Accord is supposed to have got engaged in activities which are beyond the purview of worker safety. Factory owners say Accord’s activities should be monitored under the country’s laws. They say the platform should stick to its mandate of improving worker safety in garment factories where Accord signatory companies source apparel products.
Their main grouse is: Accord is trying to influence workers of some factories to communicate with labor leaders and participate in trade unions, activities it’s not supposed to engage in. Accord is also accused of getting involved in labor management issues, such as payment of wages to workers, when a factory is closed down due to safety risks.
bangladeshaccord.org/
Falling cotton stocks made the Pakistan cotton market mind-numbing as ginners raised rates. The official spot rate was unchanged at Rs 5450. In the ready session, only 2,000 bales changed hands between Rs 4,350 to Rs 5,700. Seed cotton rates in Sindh were unchanged at Rs 2,000 to Rs 2,600 and in Punjab prices registered at Rs 2,400 to Rs 3,100.
Prices are expected to go up in the coming days as mills and spinners are trying to grab lint cotton despite soaring prices. If petroleum prices go up, it may result in a slight rise in cotton rates. Rains are not expected to play havoc in the Punjab cotton belt in times to come.
Prices are firm in international market due to strong demand. Local prices are also moving in a tight range because of this. July cotton contract on ICE Futures US was down 1.1 per cent.
On global front, ICE cotton extended losses , falling to a one-week low, after the US government projected year-end inventories for the 2015-16 crop year would be the second highest on record in its first supply and demand forecast for the upcoming crop year.
The International Wool Textile Organisation is meeting in China from May 18 to 20, 2015. This is an annual event and is one of the highlights of the wool industry’s calendar. Co-organised by IWTO member China Wool Textile Association (CWTA), the meet will be the fourth congress to take place in China, the world’s largest wool processing and wool consuming country.
The IWTO Congress is a unique opportunity for all in the wool textile pipeline to meet, exchange ideas and help formulate IWTO policy for the coming year. With the goal of working together to build a professional and sustainable industry, IWTO Congress participants include growers, traders, primary processors, spinners, weavers and garment manufacturers, together with retailers and other organisations involved in the wool pipeline. IWTO Congresses are attended by high level management representatives.
IWTO’s mission is to connect all parts of the wool supply chain to strengthen wool’s credentials as the world’s leading sustainable fiber and represent the wool industry at the international level. Among its activities are communicating the benefits and values of wool to both internal and external stakeholders; documenting and disseminating the science that supports wool’s unique natural properties; linking members and international agencies and organizations; and governing the trading standards and regulations for wool across the world.
www.iwto.org/
The United Nations Working Group on business and human rights has said that “the lessons of the Rana Plaza disaster have still not been learned.” The Group reacted after a fire in a shoe factory in Manila last week, allegedly claimed over 70 lives. “The tragic death of factory workers, mainly women, is a stark reminder of the urgent need for action to protect workers in the garment industry, despite of the Bangladesh Accord for Fire and Building Safety, created two years ago, on the same date as the Manila shoe factory fire,” said Michael Addo, who currently heads the expert group.
After the collapse of the Rana Plaza building with more than 3,000 garment workers inside in 2013 followed by fire at Tazreen Fashions factory in Bangladesh, the world woke to the harsh reality about disastrous working conditions in such factories. The Bangladesh Accord, signed by over 150 corporations from 20 countries, global and local trade unions, NGOs and workers’ rights groups is currently evaluating factory conditions in the country.
The Rana Plaza disaster also led to progress, supported by the International Labour Organization (ILO), on labour law reform, labour inspection, workplace safety and compensation for injuries to take steps to strengthen inspections of working conditions in factories. Government efforts have been undertaken in collaboration with the Accord and with another initiative, the Alliance for Bangladesh Worker Safety, led by 26 mainly North American companies.
www.un.org
