Tamil Nadu's yarn manufacturers has started making investments to move up their value chain to fabric and win better deals from Indian and foreign buyers with the recent export incentive push by Centre, after facing a high margin pressure on oversupply. The export push included introduction of new products and export target nations to its list of items eligible for support in a move to prop up shipments after a steady decline in exports led to speculation of exports falling behind the previous year's numbers.

Textile items such as fabrics and synthetic textiles, which are facing a Chinese import onslaught in India, were included in the export incentive list.

A minimum of 25 mills have ventured this way, either by installing knitting machines or going further toward complete garments, coinciding with the Department of Commerce's export sop proposed last week.

In Tamil Nadu, the big garment makers are into reverse expansion to set up their own yarn units but the reverse is not happening much because there is a risk of holding inventory without knowing there is a buyer. This central government incentive has brightened possibilities of forward integration, said Srihari Balakrishnan of MD of denims maker KG Fabriks, a company that had expanded into fabrics and garments nearly a decade ago and doing well.

In terms of expenditure for a textile unit that wants to diversify, a knitting machine from Taiwan costs Rs 15 lakh while a European import will cost Rs 25 lakh. With additional costs into labour, power, marketing and so on, a bid to move up for an average textile mills will cost Rs3 crore.

While there are Rs 1,000-crore companies in the textile belts around Coimbatore and Tirupur, the majority falls in the Rs 50-200 crore turnover bracket and a good number under Rs 50 crore.

Tamil Nadu boasts a yarn manufacturing capacity of 2.25 crore spindles but only a handful have pumped in money to become fabric manufacturers.