Khadi Institutions saved from steep price hike due to reserve fund

A far-sighted policy decision taken by Khadi and Village Industries Commission (KVIC) in 2018, to create a special reserve fund to deal with market fluctuations and other eventualities, has come as a savior for all Khadi institutions across the country, just when the entire textile industry is grappling with a steep price hike of the raw cotton.

In 2018, KVIC had decided to create a Products Price Adjustment Account (PPA), a Reserve Fund for its 5 Central Silver Plants (CSPs), to meet market-driven eventualities. These CSPs are purchasing cotton and converting it into silver and roving for the supply of Khadi Institutions, which converts it into yarn and fabric. The PPA fund was created by transferring just 50 paise to it from each kilogram of the total sliver/roving sold by these CSPs.

Three years down the line, when the entire textile sector is facing the brunt of short-supply and a steep hike in the price of raw cotton, KVIC has decided not to increase the cost of silver/roving being supplied to the Khadi institutions by its silver plants across the country despite the cotton prices surging by over 110 percent. Instead, KVIC will bear the excess cost of Rs 4.06 crore on procurement of raw cotton bales at the increased rates from the PPA Fund.

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It is pertinent to mention here that the price of raw cotton has increased from Rs 36,000 per candy to Rs 78,000 per candy (each candy weighs 365 KG) in the last 16 months. This has put a direct impact on production of cotton apparels by major textile companies across the country, which have also reduced production by 30 to 35 percent in recent months.

This decision of KVIC, which has been taken for the first time to create such reserve fund, comes as a big relief for over 2700 registered Khadi institutions and over 8000 Khadi India Outlets that are already grappling with production & marketing challenges due to restrictions imposed during Covid-19 pandemic.

KVIC largely purchases cotton bales from Cotton Corporation of India (CCI) for its 5 CSPs located at Kuttur, Chitradurga, Sehore, Raebareli and Hajipur, that convert various varieties of cotton into sliver and roving. The Cotton varieties purchased by KVIC are BB mod, Y-1/S-4, H-4/J-34, LRA/MECH, MCU_5 and DCH_32. The Price difference reported in these days is from Rs 13000 per candy to Rs 40000 per candy of these varieties. KVIC will require 6370 cotton bales of different varieties by 31^st of March 2022 which, as per the current rate, will cost Rs 13.25 crores as against Rs 9.20 crores as per the old rates. The price difference of Rs 4.05 crores will be met from the PPA reserve created by KVIC these days.

The reserve fund has ensured that the Khadi institutions in the country remain unaffected by the price rise and the prices of Khadi cotton apparels also do not go up.

KVIC Chairman Shri Vinai Kumar Saxena said that this decision would save both the Khadi institutions as well as the buyers from any adverse impact of price rise. “Short supply of raw cotton from CCI and the consequent rise in price of cotton has hit the entire textile industry including Khadi. But KVIC has decided to continue the supply of roving/sliver to Khadi institutions at the old rates so as mitigate any financial burden on the institutions. At the same time, it will also benefit crores of Khadi buyers as there will be no increase in the price of Khadi fabric and garments. It is KVIC’s commitment to every Khadi buyer to provide Khadi at affordable prices in tune with Hon’ble Prime Minister’s vision of “Khadi for Nation”, Saxena said.

Khadi has nearly 9 percent share in the Indian textile industry and produces nearly 150 million Sq Mtr fabric per year. With this decision, Khadi has emerged as the only entity that is unaffected by the steep price rise of cotton. Khadi buyers and Khadi institutions, thus, have a reason to rejoice.

Khadi Institutions have unanimously welcomed the move and thanked KVIC for the big support saying this would safeguard the institutions against any market adversities. “Cotton prices have gone up by over Rs 70 per KG. This step of KVIC will help Khadi Institutions survive during these difficult times. Any hike in the price of sliver and roving would have put a huge financial burden on institutions that are yet to recover from the impact of Covid19,” said Sarthank Singla, Secretary of Khadi Udyog Jathlana, Ambala.

Sanjay Shah of Bharat Khadi Gramodyog Sangh, Ahmedabad, said that hike in cotton prices would have a direct bearing on the production of Khadi and wages of the artisans. “If the cost of raw material goes up, the production will naturally come down and so will the wages being given to the artisans. I am thankful to KVIC that has saved the institutions and artisans from the crisis,” he said.

Cotton Price Comparison