Indian cotton yarn producers facing a tough time as the demand for cotton yarn from China, the largest importer of Indian yarn has slowed down since April due to which exports have dropped and subsidies under technology upgradation fund scheme (TUFS) have been overdue for the past few months.

Mills have also not received interest subsidies under TUFS since December. For investments to the tune of Rs 65,000 crore made by over 1,000 units since 2010, interest subsidy of around Rs 3,000 crore is pending. This has put further pressure on the working capital of the mills

In April, cotton yarn exports stood at 99.92 million kg down 14 per cent against 115.96 million kg in the same month last year. Exports during May to July too have been down by around four percent from 375 million kg during the same period last year. However, official data on exports is not out yet.

According to K Selvaraju, secretary general, Southern India Mills Association, domestic demand too is low during this time. With the decline in exports, inventories are 30 percent higher than last year's levels. Prices too have dropped 15 per cent.

Combed cotton yarn prices stood at Rs 221 per kg this August, down from Rs 261 in August last year and 11 per cent from February levels. Prices have been on a decline since February after cotton prices went into a bearish mode. The importers expect cotton yarn prices to soften further as the outlook on cotton prices is still bearish.

D K Nair, secretary general of Confederation of Indian Textile Industry stated that the new Chinese policy has put pressure on prices of both cotton and yarn. China has been procuring and stocking cotton from farmers in order to control prices. As per the new policy, the subsidies are directly given to the farmer and stockpiles are being cleared. Subsequently, yarn imports too have come down.

Chinese textile industry has not been growing like in previous years. Part of the manufacturing too is being outsourced to low-cost countries like Vietnam.