The Hank Yarn Obligation Scheme (HYO) was introduced during 1963 directing the mills to pack 50 per cent of domestic weaving yarn delivery in hank form. The hank yarn obligation would have been fixed as 50 per cent based on the spinning capacity, handloom capacity and powerloom capacity (including independent weaving units) then existed and the demand for cotton yarn from both handloom and powerloom sectors. During 2003, the hank yarn obligation was reduced from 50 per cent to 40 per cent considering the drop in handloom capacity and increase in the powerloom capacity. During 1987-88, the number of handlooms was 38.9 lakh and the same had come down to 34.86 lakh during 1995-96. Further the same has dwindled down to 21.47 lakh during 2009-10. At the same time, the number of spindles has increased to 54 million spindles from 26 million spindles in the country.
P Nataraj, Chairman, The Southern India Mills’ Association (SIMA) has stated that due to labour shortage, increase in yarn production capacity, technology upgradation, the need for the hank yarn has come down drastically and therefore, the Association has been demanding that the hank yarn obligation should be reduced to 10 per cent. Further, after the implementation of GST, the hank yarn which was exempted from tax, has been included under the GST net and taxed at 5 per cent rate and also due to closure of hank dyeing units following the stringent norms of Pollution Control Boards, the hank yarn requirement has come down sizably. Due to non-production of hank yarn, spinning mills having shortage in the obligatory quantity are forced to use the transfer facility from the mills that produce in excess quantity by paying exorbitant premium to fulfil the obligation. The expenditure involved for the transfer facility increases the production cost of the yarn which affected the sustainability of the powerlooms.
Under these circumstances, the Ministry of Textiles has issued a notification reducing the hank yarn obligation from 40 per cent to 30 per cent as part of its policy of Ease of Doing Business. Nataraj has thanked the Union Textile Minister, Smriti Irani for reducing the obligation. He has hoped that the decision would help the spinning mills which are under financial stress to a greater extent. As a result of reduction in the obligatory quantity, the premium on hank yarn transfer will also get reduced thus helping the spinning mills to reduce their cost. He felt that according to the 2009-10 handloom census, the requirement of hank yarn is less than 10 per cent and therefore, the government may consider reducing the obligation to 15 per cent in the months to come.