Exclusive: How 50 paise per kg fund helped KVIC manage steep rise in cotton prices

In 2018, KVIC, which is the Union government’s nodal agency for promotion of Khadi products in India and abroad, had decided to create a Products Price Adjustment Account (PPA), a kind of reserve fund for its five Central Sliver Plants (CSPs), to meet market-driven eventualities.

New Delhi: A price adjustment reserve fund created by Khadi and Village Industries Commission (KVIC) more than three years ago has come to the aid of over 2,700 Khadi institutions and more than 8,000 Khadi outlets spread across the country as KVIC’s centralised processing plants have decided not to increase the price of raw materials supplied to Khadi industries despite a more than 110% rise in cost of raw cotton in the last 16 months.

In 2018, KVIC, which is the Union government’s nodal agency for promotion of Khadi products in India and abroad, had decided to create a Products Price Adjustment Account (PPA), a kind of reserve fund for its five Central Sliver Plants (CSPs), to meet market-driven eventualities. These plants purchase raw cotton from the Cotton Corporation of India and convert them to sliver and roving and supply them to Khadi plants which in turn converts them into yarn and fabric that is used in the production of Khadi apparels and cloth.

This reserve fund was created by transferring just 50 paise from each kilogram of the total sliver or roving sold by KVIC’s five centralized sliver plants. It was created to deal with the fluctuations in the market price.

Steep rise in raw cotton prices

After the outbreak of Covid-19 global pandemic, the textile industry has been grappling with a crisis situation due to supply disruptions and other issues. As a result, the price of raw cotton has gone up from Rs 36,000 per candy to Rs 78,000 per candy in the last 16 months. Each raw cotton candy weighs 365 kilogram and it is used in the production of sliver and roving that is then converted into yarn and fabric.

The steep rise has put an enormous pressure on the production of cotton apparels by the country’s major textile producers as they have cut down their production by 30-35% in recent months. But due to the price reserve fund created by the KVIC, its central processing plants have decided to absorb the hike in the price of raw cotton.

KVIC has five Centralized Sliver Plants located at Kuttur, Chitradurga, Sehore, Raebareli and Hajipur that convert various varieties of cotton into sliver and roving. Instead of increasing the price of their products, these plants will bear the excess cost themselves from the reserve fund. “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,” said KVIC Chairman Vinai Kumar Saxena.

9% market share in textile industry

Khadi products have nearly 9 per cent market share in the country’s textile market as nearly 150 million square metres Khadi fabric is produced in the country every year. Saxena said the decision will benefit crores of Khadi buyers as there will be no increase in the price of Khadi fabric and garments.