A sharp decline in export to China and slowing purchases from local fabric makers might prompt cotton yarn manufacturers to slowdown investment in new capacity addition in the next five years.

A study by rating agency Care Ratings forecasts 3 million tonnes of new spindle capacity would be added between FY16 and FY21. But between FY12 and FY16, the sector added 7.3 million tonnes of manufacturing capacity. By the end of FY16, the manufacturing capacity in the country was 50 million spindles. The rapid growth, however, led to overcapacity, with fresh investment drying up.

“Capacity addition will slow down as the cotton yarn industry will be adding only about 3 million new spindles between FY16 and FY21 because of overcapacity, subdued demand and lower benefits from the central government after changes to the Technology Upgradation Fund Scheme (TUFS),” said Darshini Kansara, research analyst, Care Ratings.

More at Business Standard

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