Textile mills in the Manchester of South India are taking desperate measures like reducing production and raising prices of hosiery yarn as the cotton prices that starting soaring in October are unlikely to come down until the next season according to India Ratings and Research. As a result, textile mills in the state, which account for 46% of the spinning capacity in the country, preferred to bring down production by 15% to 20%, to at least cut their losses.

Domestic cotton prices, especially the preferred Shankar-6 variety, have risen from 34,000 per candy (355 kgs of cotton) in April to 49,000 per candy by July-end.

Southern India Mills' Association (SIMA) chairman M Senthilkumar said that the textile industry accepts that the state government does not have a role to play in stabilizing or bringing down cotton prices, but the government can take many long-term and short-term measures to help the industry tide over the current crisis and prevent it in the future. Though the GST bill has been passed, at least till it is implemented, the state government can reduce its VAT (value added tax) on cotton cone yarn from 5% to 2 % to bring it on a par with the central sales tax.

Due to the tax difference of 3%, they buy and sell a majority of their cotton raw material and products to other states which is hitting both mills and TN's economy. Otherwise, they have to transfer the tax burden to their fabric, which is not taxed across the country making their product becomes expensive.