Great comeback

Print edition : March 24, 2006

Dyed cotton yarn being wound on a cone-winding machine at the weaving unit in Sethumadai near Pollachi in Coimbatore district. Yarn produced in Coimbatore fetches a good price in the domestic market. -

COIMBATORE is walking tall again. Its residents would like to forget what happened to the city and its industry and trade from 1995 to 1999 as "a bad dream". The shock and distress caused by the recession, skewed tax policies and the serial bomb blasts of 1998 has given way to a jubilant mood.

Four major groups of industries hold the key to Coimbatore's economy. They are textiles, engineering, a variety of small industrial units, and tea estates in the adjoining Nilgiris district. The textile industry is the cornerstone of the economy. According to D. Balasundaram, managing director, CPC (P) Limited, the industry went into "a tailspin" from 1994 owing to the recession. It could not cope with international competition in the area of exports. The engineering industry also suffered a depression on account of the P.V. Narasimha Rao government's policy of high interest rates, Balasundaram said. The interest on borrowings was as high as 19 to 20 per cent. This led to a drastic drop in the demand for products made by the engineering industry.

Another handicap of the engineering industry was, according to Balasundaram, "it was not a global industry". He added: "It did not have the international exposure it has today."

Simultaneously, tea plantations in Nilgiris district were unable to recover their cost of production since there were no buyers for Indian tea because its high price.

The serial bomb blasts in the city in February 1998 was the proverbial last straw. In December 1997 too, anti-Muslim violence had rocked the city. In these two spells of violence, major business establishments, the retail trade and the petty trade on pavements, owned by both Hindus and Muslims, were targeted. "Real estate prices fell. Retail trade evaporated," Balasundaram said.

The economic and religious turmoil was made worse by the political uncertainty that prevailed at the Centre in 1996, 1997 and 1998. Between 1996 and 1999, the Centre announced no steps to pull the textile and engineering industries out of the economic quagmire. It was in October 1999, after A.B. Vajpayee came to power for the third time, that the taxation policies for textile products changed. A Technology Upgradation Fund Scheme (TUFS) was formulated, which helped to modernise and expand the textile industry. Thirdly, a quota-free regime, under the World Trade Organisation, for textiles became effective from January 2004, said Balasundaram. It was only then that both industries started breathing again.

According to M. Jambunathan, general manager (banking and finance), Kadri Mills (Coimbatore) Limited and Sharadha Terry Products Limited, Coimbatore, the textile industry started receiving a 5 per cent interest subsidy on textile machines classified under the TUFS by the Union Ministry of Textiles. Besides, the Centre gave a 10 per cent capital subsidy on the cost of certain machines used in the processing industry, considering the exorbitant cost of such machines, said Jambunathan. All this had a beneficial effect on the textile industry.

Strict pollution norms in Europe forced industrialists there to start outsourcing castings from Coimbatore. Balasundaram called it "a major factor" that helped the engineering industry. Competition from China also helped in a way. Better proficiency in English tilted the scales in favour of India.

Although there was a sharp increase in iron and steel prices, the price of machinery did not go up correspondingly. So the engineering industry in Coimbatore benefited from the higher turnover, larger profits and the appreciation of the dollar.

T.S. Subramanian
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