Mitigating local spinners' woes
Wednesday, 25 February 2009
MANY owners of the country's spinning mills even a few months back were weaving dreams about expanding their existing units or starting new ones because of the increasing local demand for their produce--yarn. But the situation, of late, has changed radically and most of them are having nightmarish experiences. According to reports published in this daily, dozens of spinning mills have already been closed down and many others have cut their daily production substantially, even up to 70 per cent. For the mill owners, the situation is becoming increasingly difficult. But what has actually gone wrong?
The heavy influx of cheaper Indian yarn has shattered the dreams of the local spinners and left an unsettling effect on this highly capital-intensive sub-sector as well as on many banks that have large exposure, in terms of lending, to it. A combination of factors -- bumper cotton harvest in India and depreciation of Rupee and allowing of import of Indian yarn through the Benapole land port by the immediate past caretaker government -- have given rise to a situation that has caught the owners of spinning mills off-guard. The local consumers of yarn, mainly the export-oriented apparel units, are, for obvious reasons, being increasingly attracted to the cheaper Indian yarn. The Bangladesh Textile Mills Association (BTMA) has already requested the government to extend support to its members to help survive the onslaught of the Indian yarn.
It is not that only the owners of the local spinning mills are going through a very difficult time. In the event of closure and cut in normal production of the spinning mills, a large number of workers would lose their jobs and the banks which have a heavy exposure, in the form of loans and credits to the units in this sub-sector, might find them in a deep crisis. One may tend to ask an obvious question: why did the caretaker government allow yarn import through Benapole land port when an elected government earlier had imposed restriction on such entry? Before, the entry of Indian yarn was allowed only through Bangladesh seaports. But such restriction had not been in conformity with the principles of trade liberalization. So, theoretically, there should be hardly any valid reason to question the decision that was taken to lift the restriction. But Bangladesh businesses might find enough reasons to protest such a decision because the matter thereof involves the issues of not-so-smooth Indo-Bangladesh bilateral trade relations. India, as the local businesses have been complaining since long, has been putting up various tariff, non-tariff and para-tariff barriers to imports from Bangladesh.
However, in the globalised world, the main mantra of survival happens to be 'competitiveness'. It is hard to restrict the entry of others' products if a country wants unhindered entry of its own products to the outside markets. India, being a producer of cotton, enjoys a definite edge in spinning sub-sector, in terns of cost of production over Bangladesh, which is dependent on imported cotton. The government should find ways and means of how best it can help the local spinning mills to overcome the current crisis. But the mills themselves would also have to devise alternative means to survive well beyond the present difficult time. Some spinning mills, reportedly, are trying to work out both backward and forward linkages of their own to reduce their dependence on other buyers. In doing so, these enterprises might require financial assistance. If such linkages are found feasible, the banks, for their own sake, might feel tempted to lend out funds.
The heavy influx of cheaper Indian yarn has shattered the dreams of the local spinners and left an unsettling effect on this highly capital-intensive sub-sector as well as on many banks that have large exposure, in terms of lending, to it. A combination of factors -- bumper cotton harvest in India and depreciation of Rupee and allowing of import of Indian yarn through the Benapole land port by the immediate past caretaker government -- have given rise to a situation that has caught the owners of spinning mills off-guard. The local consumers of yarn, mainly the export-oriented apparel units, are, for obvious reasons, being increasingly attracted to the cheaper Indian yarn. The Bangladesh Textile Mills Association (BTMA) has already requested the government to extend support to its members to help survive the onslaught of the Indian yarn.
It is not that only the owners of the local spinning mills are going through a very difficult time. In the event of closure and cut in normal production of the spinning mills, a large number of workers would lose their jobs and the banks which have a heavy exposure, in the form of loans and credits to the units in this sub-sector, might find them in a deep crisis. One may tend to ask an obvious question: why did the caretaker government allow yarn import through Benapole land port when an elected government earlier had imposed restriction on such entry? Before, the entry of Indian yarn was allowed only through Bangladesh seaports. But such restriction had not been in conformity with the principles of trade liberalization. So, theoretically, there should be hardly any valid reason to question the decision that was taken to lift the restriction. But Bangladesh businesses might find enough reasons to protest such a decision because the matter thereof involves the issues of not-so-smooth Indo-Bangladesh bilateral trade relations. India, as the local businesses have been complaining since long, has been putting up various tariff, non-tariff and para-tariff barriers to imports from Bangladesh.
However, in the globalised world, the main mantra of survival happens to be 'competitiveness'. It is hard to restrict the entry of others' products if a country wants unhindered entry of its own products to the outside markets. India, being a producer of cotton, enjoys a definite edge in spinning sub-sector, in terns of cost of production over Bangladesh, which is dependent on imported cotton. The government should find ways and means of how best it can help the local spinning mills to overcome the current crisis. But the mills themselves would also have to devise alternative means to survive well beyond the present difficult time. Some spinning mills, reportedly, are trying to work out both backward and forward linkages of their own to reduce their dependence on other buyers. In doing so, these enterprises might require financial assistance. If such linkages are found feasible, the banks, for their own sake, might feel tempted to lend out funds.