Composite textile mills are slowly being put out of business by smaller textile units. In the last 18 months, 69 composite mills have shut down production with a loss 37,000 textile worker's jobs, raising the tally to 356 mills closed and 340,000 jobs lost in the past couple of years.

Small units are being defended under government policies that protect them from the larger composite mills, despite the government gearing up for open competition at the end of 2004 when the MFA quota system ends in the US and Europe.

As an incentive to protect the small units, the government offers them an initial yearly turnover of $160,000 free of excise, and after that it is limited to a nine per cent excise differential. To take advantage of this, many businesses simply start another unit the moment turnover reaches the excise-free figure.

The larger composite mills, which offer a fully integrated process (gin, spin, weave, print/dye), lose out to the smaller units who traditionally offer one or two processes, but can offer a fully integrated service by forming a chain.

Last week, Arvind Singhal, a textile industry expert, called for the government to level the field for both sectors. He pointed out that as well as the differences in excise duties, hand processors, who process over 5,400 million metres of fabric, pay no duty, while composite mills, who produce around 1,600 million metres of fabric, have to pay over 8bn rupees ($170m).

Despite their decline in the home market, a mere 4.4 per cent of the total Indian fabric production, composite mills make up 65 per cent of all Indian fabric exports, an area where they do not encounter any discrimination. Continued difficulties in the home market may also lead to reductions in investment for exporters, leading to further problems.

The decline in composite mill production in India has also been met with an increase in fabric imports. Between 1999-2000 imports to India were $222m, a 40 per cent increase from the previous year.

By Navroz Havewala