Financing of cotton textile industry in India

The Cotton Textile Industry has been occu pying an important place in our country's economy. It has been meeting the clothing needs of millions of people, contributing significantly to the indus trial production, employing large workforce and generating export surpluses.

Never in its one hundred and thirty years old chequered history, the cotton textile industry in India has been in such doldrums as it is at present. Due to incessant uneconomic operation, the industry's financial viability has been deplorably shattered. Many mills in the industry have already reached a stage of financial prostration with complete exhaustion of all the reserves and surpluses and their liquidity position has become most precarious. Many mills have already be come "sick" and some more are in the process of getting sick.

Of the problems that the industry has been facing for the last three decades or so, is the problem of financing which has become a crucial issue and is leading to further problems. Due to low or absence of profitability, the industry has failed to retain more profits and consequently been forced to depend more on external sources, which in turn led to imbalances in capital struc ture. The failure of the industry in the mainte nance of adequate liquidity is the direct result of imbalanced capital structure and inadequate li quidity which in turn is affecting the profitability. Since the industry has been incurring losses for so many years, the payment of dividend, interest and the repayment of principal amounts are becoming a big problem, and further no investor is now ready to provide further funds to the industry. Thus, the cotton textile industry is caught in the vicious circle, and further securing of funds other than the funds under the Soft Loan Scheme of Industrial Development Bank of India (IDBI) is becoming impossible. It is in this context an attempt has been made in this study to analyse the problems in the financing of the Cotton Textile Industry of the Private Corporate Sector in India and to suggest some measures to tide over the crisis.