Oil Prices and Competition Bugs Textile Firms

The Rs.1,30,000 crore Indian textile industry is concerned of rising crude oil prices and fierce competition from China in world trade. The textile industry is less optimistic over their performance in coming quarter than it was in the July-September quarter. This is revealed by the third consecutive survey on Business Confidence of Indian textile industry for the quarter October to December 2005, conducted by YarnsandFibers.

The man-made fiber industry, in particular, is worried on the crude price front while cotton textile segment is content with the bumper cotton crop and low fiber prices. However, the entire textile segment is worried over competition from China, as it has cost advantage over India. Textile companies want Government policies to be favourable and in line those in the neighbouring textile nations. The Government also needs to work on infrastructure, labour and power reforms and friendlier fiscal and export policies to enhance competition. A majority of the firms surveyed have indicated that power supply and infrastructure bottlenecks would impede their performance in the current quarter. With trade barriers removed the textile Ministry has set an ambitious export target of US$50 billion by 2010. To achieve this, the industry needs an investment of about Rs.1,40,000 crore, a colossal task as current investments are just a trickle of the total requirement. Thus an environment has to be made conducive investments to flow.

Talking about domestic demand the Indian economy is posed to grow by 6.8-7.0% in 2008-06 over and above the 6.9% growth recorded in 2004-05. With two consecutive years posting generous growth in income levels, it is obvious that domestic demand is likely to expand significantly. However, inflationary trend may set in led by the high crude oil prices.

The YarnsandFibers’ third consecutive survey on Indian textile business confidence was held in early October. The three business confidence indices

– the YnFx Business Confidence Index (measure of future prospect), YnFx Current Business Status Index (measure of current status) and YnFx Business Margin Expectation Index (measure of pricing input and output) - which emerged from the survey explains the pessimism and constraints textile firms would face to enhance their performance.

The survey results reveal that textile firms are less optimistic over their likely performance in the current quarter of October to December 2005 compared to their aspirations and actual performance in the previous quarter. The YnFx Business Confidence Index for the quarter October to December 2005 stands at 81.6 while the current business status index for the July-September quarter is at 80.3. The Business Confidence Index for July-September quarter was a shade higher at 83.9 and even higher at 86.5 in the June quarter.

The YnFx Business Margin Expectation Index, which measures the firms pricing capabilities for their end product as well as for the inputs, stands at 50.7, implying that the margins from operation would be on average at the same levels.

An increasing number of firms are now indicating that the greatest source for enhancing their performance will be enter new markets with existing products. Developing new products and better pricing capabilities would continue to give them secular growth. A noticeable change is seen in the export destination in this survey. More firms are looking at Europe and USA as well as Middle East as major export destinations.

On the constraints front as many as nearly one-third of the survey respondents are of the opinion that inadequate power supply and infrastructure facilities would impede their growth in the current quarter.

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