According to industry officials, India’s textile and apparel industry, which is valued at approximately $200 billion, is in the midst of a crisis because consumers in major markets such as the United States, Europe, and other regions have reduced their spending on clothing in response to a surge in inflation caused by the conflict in Ukraine.
Even though the economy as a whole is doing relatively well and is outperforming other major economies, the textile industry is a notable exception. Recent orders suggest that the downturn will continue well into 2023, which raises the possibility of layoffs in an industry that employs more than 45 million people.
The industry’s exports, which account for around 22% of the total, have been dropping for the past five months in a row, with a year-over-year drop to $3.1 billion in November, representing a decline of over 15%. According to manufacturers, domestic sales remain slow despite good development in the broader economy. This is reportedly due to high expenses and inexpensive clothing imported from other countries.
After experiencing record sales earlier in the year, local textile firms are now reducing production. This is one aspect that contributed to a decrease of 4.3% in manufacturing output during the July-September quarter, which has caused officials to express alarm.
This comes at a time when the administration of Prime Minister Narendra Modi is struggling to develop work opportunities for the millions of young people who enter the labour market each year.
The worldwide retail sales of apparel have been pulled down by rising inflation and reduced consumer attitude, and the prospects for 2023 appear grim, according to a research that was published by McKinsey last month. This comes after 18 months of healthy growth until the middle of 2022.
Despite robust expansion in other parts of the world, India’s manufacturing sector, which accounts for 16 percent of the country’s GDP, has been negatively impacted by rising prices of raw materials and sluggish demand. The manufacturing sector did not exhibit any signs of expansion during the first half of the current fiscal year (which runs from April to March), while the total economy rose by 6.3% thanks to the contributions of agriculture and the service sector.
Textile manufacturers, along with makers of footwear, furniture, electronic and electrical goods, have been hit hard because companies are struggling to pass on rising input costs, and consumers have reduced their spending on these products as they spend more money on other necessities like food and fuel.
Manufacturers in the textile sector claim that increasing local cotton prices and other costs have reduced their profit margins. At the same time, orders from foreign customers for the summer after next have dropped by around one-third, and domestic demand has not improved.
According to Naren Goenka, chairman of the Apparel Export Promotion Council, “We see difficult times at least for the next six months as orders from major markets including the EU and the USA have come down substantially.” Goenka cited inflation and global headwinds as factors affecting domestic sales as well. “We see difficult times at least for the next six months as orders from major markets including the EU and the USA have come down substantially.”
According to Sahid Khan, a garments manufacturer in Ahmedabad, the textile hub in Modi’s home state of Gujarat, profit margins have decreased due to lower sales in the domestic market. This is the case despite the fact that cotton prices have fallen by approximately 40 percent from record highs hit in 2022.
“Interest rates on bank loans have increased along with labour costs, but my sales are down,” he said, adding that domestic cotton prices remained high in comparison to global prices, and manufacturers were unable to compete with cheap imports from Bangladesh due to Bangladesh’s monopoly on the market.
According to Atul Ganatra, president of the Cotton Association of India, the cost of locally produced cotton is at least ten percent more than the cost of global standards (CAI).
Ganatra stated that the government need to eliminate the import charge of 11% that is now placed on cotton in order to provide local textile manufacturers with an equal playing field. This will make it possible for mills to import cotton from overseas, which is approximately ten cents per pound less expensive than the cotton that is available locally.
While the benchmark Nifty has increased by almost 7% so far this year, the share prices of many of the industry’s most prominent textile businesses, including Arvind Ltd., Vardhman Textiles, Trident, and Nahar Spinning Mills, have fallen by between 20% and 40%.
As a response to the crisis, the sector has requested that imports of cotton be exempt from tariff, that interest rates on bank loans be subsidised, and that production-linked incentives be increased.
An official of the government who had direct knowledge of the matter and asked for anonymity because he was not authorised to speak to media requested that the demands be considered by the government soon, and it is likely that an announcement will be made in the annual budget which is due in February.
The majority of textile businesses have put a halt to the hiring of new employees and have issued a warning that job layoffs would occur if the government does not give assistance quickly.
Many smaller businesses in Tirupur, which is a centre for the production of knitwear and is located in southern India, have reduced the number of employees they employ since, according to their statements, they are functioning at less than fifty percent of their capacity.
According to Raja Shanmugham, a former president of the Tirupur Exporters’ Association, the local industry, which has annual production worth over $8 billion for both domestic and international markets, is concerned that it will suffer up to a one-third fall in exports this year from $4.5 billion in 2021/22, which was the previous high point.
He claimed, “There are few orders for next summer,” adding that large merchants were asking for hefty reductions in order to remove earlier scheduled orders. “There are few orders for next summer,” he said.
According to him, sales in the domestic market were slow this year, despite the fact that they typically perk up during the festival and marriage season, which begins in October.
The head of Sentinel Clothing in Tirupur, Chandira Kumar, stated that he had let off two-thirds of his employees, bringing the total number of employees he employed down to 150, since he was having a tough time staying afloat due to low order volume and slim profit margins.
“If things keep going the way they have been, I may have no choice but to close the plant,” he added.
Reference:
Reuters, and New Delhi. “India’s Textile Industry Faces Tough Times as Buyers Cut Spending.” The Daily Star, 18 Dec. 2022, https://www.thedailystar.net/business/global-economy/news/indias-textile-industry-faces-tough-times-buyers-cut-spending-3198721.
