The Hindu Business Line : `The bias towards cotton is changing'

India has been a dominant player in the export market for cotton textiles, but when it comes to synthetics, it has a modest presence. This is missed opportunity as consumption for synthetics is greater than that of cotton textiles at the global level. Reliance and Indo Rama Synthetics are the two dominant players in the Indian synthetic textile industry. In recent years, both have stepped up their presence in international markets, through acquisition. Mr O. P. Lohia, the Chairman and Managing Director of Indo Rama Synthetics and Head of the FICCI taskforce on textiles, spoke to Business Line on the trends in, and prospects for, the industry. He believes that a sharper focus on synthetic textiles is essential if India is become a dominant player in the international market.

Excerpts from the interview:

India has traditionally been a stronger player in the cotton textiles segment compared to synthetics. Do you see any change in the trend?

Ten years ago, India was definitely stronger in cotton than synthetics. In the current year, the total production of man-made is equal to that from natural fibre. So the bias towards cotton has changed.

If the entire volume of the industry is about 4.5-5 million tonnes, polyester and polyester filament yarn account for about 1.6-1.7 million tonnes. Add this to acrylic, nylon, viscose, which taken all together is about 300,000 tonnes, the total output of man-made fibres is about two million tonnes. So the ratio of cotton to synthetics is now 50:50.

The export basket of textile products, too, has been skewed towards cotton. How do you view the export potential for synthetics?

At the global level, the consumption of man-made textiles is more. And as far as domestic consumption is concerned, synthetics have crossed more than 50 per cent of the total consumption.

Eighty-85 per cent of our exports still, however, consist of cotton because we feel we are strong in cotton. We try to export what we make. China tries to export what the consumer needs.

Let us say we export $13 billion of textile products. Of that, $11 billion (85 per cent) is accounted for cotton and the rest by synthetics. At the global level, the ratio (fibre mix of synthetics versus cotton) is 60:40. We have to move at least towards a 50:50 mix.

Last year, when a few items under the quota opened up, China increased its exports to the US and become a larger supplier than Mexico. China took advantage of the opportunity; we did not. We have the capability. We only need to put our house in order.

The export market for cotton yarn is showing signs of stagnation. Is that the case with synthetic yarn as well?

Yes, it is not economical for developed countries to make garments anymore. As the supply chain becomes more efficient, they wish to transfer their facilities here.

Post 2005, they will be more dependent on import of garments. Their manufacturing activity is going to decline, which means they will source less yarn.

Today out of the $12 billion worth of exports, $6 billion is textiles and $6 billion garments. In the case of China, out of the textile industry export of $60-65 billion, about $40 billion is in the form of garments (67 per cent of exports).

We happen to be exporting more of raw materials when we should be exporting garments. We should not be worried about the decline in the export of yarn, because the export of garments is going to increase.

What proportion of your revenue is derived from exports?

For Indo Rama Textiles (synthetic blended yarn), the yarn exports are more than 50 per cent of revenues. In the case of Indo Rama Synthetics (polyester filament yarn), our exports are not high. We have been catering to the domestic industry.

You are doubling your polyester capacity to 1600 tonnes per day. Where do you expect the increase in demand to come from?

We are hopeful that from 2005, when export of garments picks up, there will be higher demand for fabrics. We plan to meet that demand.

You set up a PET (polyethylene terephthalate) project in the US last year...

Yes, that is doing quite well. India exports PET to the US market. We took over the plant to cater to that market. The US is the largest consumer of PET.

There have been a number of price hikes for polyester staple fibre and partially oriented yarn over the year. Have these hikes affected volumes?

As crude prices have gone up, prices across our raw material chain — PTA, MEG and so on — have also risen. Volumes have not been affected much. Demand is not that price sensitive as ultimately there is no impact on the margins of the final product. The consumption of yarn as a percent of total cost at the final stage of production is low.

Why is there a negative bias towards the synthetic sector in the level of excise duty?

Polyester is cheaper than cotton. It is not as if man-made fibres are like alcohol and bad for health and that's why you have to pay higher duty.

Under the prevailing system, it is simply a case of cotton as the costlier fibre bearing a lower duty and synthetics being cheaper suffering a higher duty, so that there is a level playing field. This is not right.

Most players in the industry have had difficulty in raising funds from banks and other institutions. What do you think needs to be done to encourage investment in the industry?

Investments will improve only when there is no distortion in the policy and when the sentiment towards this industry improves.

TUFS (Textile Upgradation Fund Scheme) and other schemes are available to fund your expansion.

But the entrepreneur himself needs to be convinced to put in his money. The industry has to become more profitable for him.

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