US embassy cable - 06CHENNAI846

BOOM TIMES FOR SOUTH INDIAN COTTON MILLS

Identifier: 06CHENNAI846
Wikileaks: View 06CHENNAI846 at Wikileaks.org
Origin: Consulate Chennai
Created: 2006-05-02 10:20:00
Classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY
Tags: ECON EINV ETRD EAGR EIND IN
Redacted: This cable was not redacted by Wikileaks.
VZCZCXRO0484
RR RUEHBI RUEHCI
DE RUEHCG #0846/01 1221020
ZNR UUUUU ZZH
R 021020Z MAY 06
FM AMCONSUL CHENNAI
TO RUEHC/SECSTATE WASHDC 8144
INFO RUEHNE/AMEMBASSY NEW DELHI 1624
RUEHBI/AMCONSUL MUMBAI 4747
RUEHCI/AMCONSUL CALCUTTA 0494
RUEHLM/AMEMBASSY COLOMBO 1198
RUEHKA/AMEMBASSY DHAKA 0506
RUCPDOC/USDOC WASHDC
UNCLAS SECTION 01 OF 02 CHENNAI 000846 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR EB 
USDOC FOR MAC/ANESA/OSE/ASTREN/LDROCKER 
USDOC FOR TD/AS/AC/BLOPP 
USDA FOR FAS/LBLUM 
 
E.O. 12958: N/A 
TAGS: ECON, EINV, ETRD, EAGR, EIND, IN 
SUBJECT: BOOM TIMES FOR SOUTH INDIAN COTTON MILLS 
 
 
1. SUMMARY: (U) The cotton textile industry in south 
India is in the midst of a boom as international demand 
continues to grow for all categories of Indian cotton 
products.  The spurt in demand, attributed to low 
production costs, internationally acceptable levels of 
quality and the removal of quotas, has spurred feverish 
expansion of capacity.  Cotton cultivation in south India 
has kept pace with the increase in production, causing a 
drop in imports of U.S. cotton.  Knowledge and experience 
in brand development is currently lacking among Indian 
companies in this industry, and presents opportunities 
for U.S. businesses with these skills. END SUMMARY 
 
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REMOVAL OF QUOTA RESTRICTIONS CONTRIBUTES TO THE BOOM 
--------------------------------------------- -------- 
 
2. (U) The cotton industry in South India is in the midst 
of a boom thanks to the removal of WTO quota restrictions 
that had been established during the Uruguay round of 
trade negotiations in 1994, relatively low production 
costs and improved quality standards that now meet global 
market requirements.  The South India Mills Association 
(SIMA) reports that production of yarn in the region 
increased by 60 percent in the first quarter of 2006 
compared with the previous year.  Vasantha Kumar, the 
Joint Director of the Apparel Export Promotion Council, 
told Post that the value of garment exports from the 
Coimbatore region in west-central Tamil Nadu had 
increased from $2 million in the first quarter of 2005 
to $36 million during the same period in 2006. 
 
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SCALING UP TO SURVIVE 
--------------------- 
 
3. (U) Expanding capacity has been the common theme in 
all textile industry segments.  The Government of India 
sponsored Technology Upgradation Fund Scheme (TUFS), has 
enabled producers to secure loans at an interest rate of 
3 percent compared with prevailing rates of 7 to 12 
percent, which has facilitated expansion significantly. 
SIMA former Chairman Vijay Venkataswamy told Post that he 
expected 1.5 million spindles to be added in 2006-07. 
Almost all of the additional capacity will be of the 
shuttle-less variety, which produces a higher quality 
product.  P.V. Ramaswamy, Chief Executive, SIMA says that 
mill owners with access to capital now invest in mills 
with over 25,000 spindles rather than those with 10,000 
spindles as was the case five years ago when industrial 
policy favored small producers.  Ramaswamy said small 
operations were no longer viable in the new environment. 
 
--------------------------------------------- -- 
CHINESE TEXTILE MACHINERY MANUFACTURERS CASH IN 
--------------------------------------------- -- 
 
4. (U) Local producers of textile machinery have been 
unable to meet demand for new equipment.  Lakshmi Machine 
Works, one of the largest local manufacturers of textile 
machinery, reports a two year backlog of orders.  South 
Indian textile entrepreneurs have turned to manufacturers 
in China and Taiwan to source machinery.  China Texmatech 
Company, in particular, has benefited and reportedly 
secured orders for 50,000 spindles in the Coimbatore area 
alone during the International Technology and Machinery 
Expo held in March 2006.  The company has now set up a 
liaison office in Coimbatore to provide after-sales 
services to its customers. 
 
--------------------------------------------- ---- 
INCREASED PRODUCTIVITY SHRINKS US COTTON EXPORTS 
--------------------------------------------- ---- 
 
5. (U) Cotton farmers in Tamil Nadu have kept pace with 
the increase in textile production.  Use of genetically 
modified seeds and adoption of better post-harvest 
practices have been the main factors in increasing cotton 
production, K.N. Viswanathan, Secretary, The South India 
Cotton Association, told Post.  The crop year 2004-2005 
 
CHENNAI 00000846  002 OF 002 
 
 
saw a bumper cotton crop in India with production 10 to 
15 percent above historical levels.  As a result, imports 
of the upland variety of cotton from the U.S. dropped 
sharply since Indian cotton had a 7 cents per bale price 
advantage over the U.S. product.  Viswanathan said that 
long-stapled cotton continues to be imported from the 
U.S. but in much smaller quantities when compared to 
imports from Egypt.  Purchases of long-stapled U.S. 
cotton, he said, were made only when the importer of a 
finished product specified that the U.S. variety be used. 
 
--------------------------------------------- ------- 
BUILDING GLOBAL BRANDS - OPPORTUNITY FOR US BUSINESS 
--------------------------------------------- ------- 
 
6. COMMENT: (SBU) At this point, the Indian cotton 
industry lacks the knowledge and skills to establish and 
maintain brands in the global market.  This presents 
opportunities for U.S. businesses that possess such 
skills.  South Indian textile companies are currently 
seeking western talent that can conceptualize, launch and 
build brands that will enable Indian cotton products to 
move up the value chain, K.G. Balakrishnan of K.G. Denim 
told Post.  His company launched its own "Trigger" brand 
of jeans that did well in the Indian market but made 
little headway in the West.  His company continues to do 
job work for international brands like Wrangler and J.C. 
Penny.  But having a global brand of his own is his 
dream, Balakrishnan told Post, and it is something that 
he plans to invest in. END COMMENT. 
 
HOPPER 

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