Textile mills across India are reducing their capacities due to unfavourable market conditions.

Industry executives say the rising cost of raw material, long power cuts, increased cost of borrowing and reduction in the duty drawback rates have meant that existing capacities are underutilised. They also claim that around 1.5 million jobs have been lost in the sector in the past 12 months.

“I had to shut my mill due to heavy losses. The input costs have risen drastically and that has resulted in closure of many mills in North India,” said Sunil Jain, chairman and managing director, IC Textiles Ltd. Nearly 1,100 workers lost jobs due to the closure of Jain’s mill.

Jain, also the president of the Northern India Textile Mills Association (NITMA), says many more mills are facing tough times but do not talk about it due to the fear that banks and other lenders may take notice.

A textile mill owner told Business Standard that his company was on the verge of closure as he was not making profits for over a year now.

“Our bad days started in 2007 when the dollar depreciated drastically against the rupee. After that, the unprecedented hike in cotton prices and increased cost of borrowing have broken our back,” he said.

The textile ministry had set up a target of creating 14 million jobs by the end of the 11th five-year Plan (2007-12). However, with such a high rate of job losses in the last one year, it seems unlikely that the industry, which employs around 33 million people, can meet this target. Members of NITMA, which represents around 70 mills with nearly 200,000 workers, cut production by 25 per cent after prices of raw cotton touched an all-time high this year. The prices of Shankar-6, the benchmark variety, were Rs 21,985 per candy in September last year. They were up nearly 28 per cent to Rs 28,100 by September this year.

Textile mills in North India exported products worth around $3 billion in 2007-08. The country’s total textile exports were worth $20.5 billion. “This year it is unlikely that the mills will be able to reach even last year’s figures,” Jain says.

In Tamil Nadu alone, where over 500,000 people are employed in the spinning industry, over 1,50,000 people have lost jobs. “The industry in the state faces power cuts of over 60 hours a week due to which the mills have been functioning at only 35 per cent capacity”, said S Dinakaran, vice-chairman, Southern India Mills’ Association. “The cost of raw cotton is beyond the purchasing power of the mill-owners. We are facing troubles from all sides,” he added.

According to the South India Textile Research Association, mills running at less than 85 per cent capacity are considered sick. The government data for 2006 estimated employment in the textile mills and the garment sector at 18.75 million.

“Tirupur’s garment exporters are working only five days a week, compared with the entire week plus over-time till last year.

We have fewer orders this year as the cost at which European and US buyers want our products is 7-8 per cent less than our break-even point,” said Sakthivel, president, Tripur Exporters Association.

“Tirupur exporters have reduced their production by 15 per cent,” he added.

The nearly 9,000 garment manufacturing firms in India have seen nearly 300,000 job cuts. “Hundreds of small garment manufacturers have shut their business in the last one year. The fall of the dollar made us hedge our 60 per cent of the orders for this year at Rs 42 a dollar. The reduction of the duty drawback rate in the range of 20-60 per cent by citing that the exporters are making profits because the dollar has reached the Rs 47 level is against the interests of exporters,” said Rakesh Vaid, chairman, Apparel Export Promotion Council.