The interest rates were at the high of 12.75-13.25 per cent in the current fiscal so far compared to 11-11.5 per cent last year.
Rise in interest cost borne by the textile companies was higher than the rise in sales. The borrowing cost of the big firms went up by whopping 45 per cent while the rise in sales was only 12 per cent.
Similarly, the small companies too witnessed higher jump in interest expenses at 17.5 per cent compare to only 9 per cent sales growth.
High interest rates also checked the growth of credit disbursement to the sector as according to the RBI data, the growth in non-food gross bank credit given to the textile sector declined from 39 per cent as on the period on August 17, 2006 declined to 28 per cent in this year.
Slowdown in the textile industry due to mounting pressure at the export component has not deterred the wage expenses. The salary cost is up by 25 per cent and 21 per cent for the large and middle size companies respectively.
The rigid labour laws of the country do not allow adjusting work force according to the demand. The Contract Labour Law, 1970 restricts the textile units to outsource and appoint labour on contractual basis.
The effect of sharp rise in raw material cost is largely felt in case of the large size textile companies to the extent of 27 per cent. Of the ten top companies in the Sector, seven recorded higher increase in raw material expenditure than sales growth.
Four mid size textile companies experienced the similar phenomenon. The AEP has accorded the competitive pricing policy followed by the big and established textile and garments majors to this finding.
While the small companies may have reduced the production with lesser export demand, the big size companies have not resorted to slash in production and rather opted to forego the profit margin by resorting to competitive pricing.
The Associated Chambers of Commerce and Industry of India
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