To deal with farmer distress and mill owner woes when a cotton crop fails, the textile ministry proposes to create a dedicated cotton price stabilisation fund. Textile minister K S Rao said, “The proposal will go before cabinet next month.”

A part of the earnings from cotton exports will be used to create the fund corpus, which will be leveraged to pay the difference in prices in adverse times. The details were still being worked out, he told Financial Chronicle.

India produces 34-35 million bales of cotton in a cotton year – which begins in October and ends in September next year. The requirement of the textile industry, the second largest employer in India, is around 27 million bales annually. A major part of the surplus is exported. The government would also decide early the quantum of cotton to be permitted for exports so that farmers got the right price, he said.

Delayed export permissions are routine. As a result, traders corner stocks and export after getting permission, which take a few months. They make a windfall from this, according to the minister. Rao said Cotton Corporation of India purchased 2.85 million bales at Rs 3,400- 3,500 per 100 kg in 2012-13, suffering a loss of Rs 719 crore.

Lately, cotton prices have firmed up to Rs 3,900 – 4,300 per 100 kg. So, the government has asked the corporation to release cotton and reduce its losses by Rs 300 - 400 crore.

Rao said he would give top priority to the conversion of 23,000 obsolete powerlooms into modern shuttleless powerlooms. This would raise textile production by at least 30 per cent.

One estimate is that in India over 60 per cent of spindles are more than 25 years old. The automatic (shuttleless) looms account for only 18 per cent of the total. The world average is 62 per cent and in the US all looms are automatic.

Obsolete machinery leads to low output and poor quality of goods. As a result, Indian textiles are not able to face competition in the international market.

The proposed technology upgradation fund would be used in a big way for this purpose. In the past five years, Rs 2,25,000 crore has been invested in the modernisation of the textile industry. The amount included a government subsidy of Rs 17,000 crore. "In the next two years, Rs 1,00,000 crore investment is proposed in technology upgrades, involving a subsidy of Rs 9,000 crore,” he said.

India has 1,227 textile mills with 29 million spindles. While yarn is mostly produced in the mills, fabrics are produced in the powerloom and handloom sectors as well.

The industry continues to be predominantly based on cotton; 65 per cent of raw materials consumed is cotton. The yearly output of cotton cloth is about 12.8 billion metres (about 42 billion ft).

Rao said he would soon convene a meeting of textile machinery manufacturers to step up production. Lakshmi Mills in Coimbatore is a major manufacturer of shuttleless looms.

While Indian machinery cost Rs 15 lakh per shuttleless loom, a similar loom imported from Europe costs around Rs 30-60 lakh. Chinese shuttleless looms cost Rs 5-15 lakh each. The cheaper Chinese machinery is not preferred due to its poor quality.