September 30, 2023

India’s $200 billion textile and attire trade is dealing with a disaster as shoppers in the USA, Europe and different massive markets have lower spending on clothes following a surge in inflation after the conflict in Ukraine, trade officers mentioned.

Whereas the general economic system is comparatively robust and is outperforming main economies, the textile sector is a notable exception and orders recommend the downturn will proceed nicely into 2023, elevating the chance of layoffs in an trade that employs greater than 45 million individuals.

Exports, which represent about 22% of the trade, have fallen for 5 months in a row – declining over 15% year-on-year in November to $3.1 billion. Home gross sales are sluggish regardless of robust progress within the general economic system due to excessive prices and low cost imported clothes, producers say.

After bumper gross sales earlier this 12 months, native textile factories are actually slicing manufacturing – contributing to a 4.3% contraction in manufacturing output in July-September quarter that has raised considerations amongst policymakers.

The shock comes as Prime Minister Narendra Modi’s authorities struggles to create employment for tens of millions of kids getting into the job market annually.

After 18 months of sturdy progress by means of mid-2022, world retail gross sales of clothes have been dragged down by excessive inflation and depressed shopper sentiment, and prospects for 2023 look gloomy, a McKinsey report mentioned final month.

In India, the manufacturing sector, contributing 16% of GDP, has been hit by rising uncooked materials prices and weak demand, regardless of vivid progress elsewhere. Manufacturing confirmed no indicators of progress within the first half of the present April-March fiscal 12 months whereas the general economic system, helped by agriculture and companies, expanded 6.3%.

Textile producers, together with makers of footwear, furnishings, digital and electricals, have been hit as corporations battle to cross on rising enter prices, whereas shoppers have lower expenditure on these merchandise as they spend extra on meals and gasoline.

Within the textile trade, producers say larger home cotton costs and different prices have hit revenue margins, whereas abroad orders for subsequent summer time are down by about one-third and home demand stays weak.

“We see tough occasions not less than for the subsequent six months as orders from main markets together with the EU and the USA have come down considerably,” mentioned Naren Goenka, chairman, Attire Export Promotion Council, citing inflation and world headwinds hitting home gross sales as nicely.

Sahid Khan, a clothes producer in Ahmedabad, the textile hub in Modi’s house state of Gujarat, mentioned regardless of a fall in cotton costs by about 40% from report highs hit in 2022, revenue margins had been down on account of decrease gross sales within the home market.

“Rates of interest on financial institution loans have gone up together with labor prices, however my gross sales are down,” he mentioned including that home cotton costs remained excessive in comparison with world costs, and producers had been unable to compete with low cost imports from Bangladesh.

Native cotton is not less than 10% costlier than world benchmarks, mentioned Atul Ganatra, president of the Cotton Affiliation of India (CAI).

“The federal government must scrap the 11% import obligation on cotton so native textile mills can have a degree taking part in discipline,” Ganatra mentioned. “This can enable mills to have choices to import cotton from abroad which is almost 10 cents per pound cheaper than native provides.”

Shares of main textile corporations like Arvind Ltd , Vardhman Textiles, Trident and Nahar Spinning Mills have plunged between 20% and 40% this 12 months, whereas the benchmark Nifty is up over 7%.

The trade has sought obligation free imports of cotton, an curiosity subsidy on financial institution loans and growth of manufacturing linked incentives to face the disaster.

The federal government may quickly think about the calls for, and an announcement is probably going within the annual finances due in February, mentioned a authorities official with direct data of matter, asking for anonymity as he was not licensed to talk to media.

Worry of Job Cuts

Many textile producers, who’ve frozen hiring of staff, have warned of jobs cuts if the federal government fails to supply reduction quickly.

In Tirupur, a knitwear manufacturing hub in southern India using over 600,000 staff, many small corporations have slashed the workforce as they are saying they’re working on lower than 50% capability.

With annual manufacturing value over $8 billion for home and abroad markets, the native trade fears it should endure as much as a one-third fall in exports this 12 months from $4.5 billion in 2021/22, mentioned Raja Shanmugham, former president of the Tirupur Exporters’ Affiliation.

“There are few orders for subsequent summer time,” he mentioned, including massive retailers had been asking for heavy reductions to carry earlier booked orders.

Gross sales within the home market, which normally choose up through the pageant and marriage season beginning October, had been weak this 12 months, he mentioned.

Chandira Kumar, head of Sentinel Clothes in Tirupur, mentioned he had let go two-thirds of his staff and was left with 150, as he was discovering it tough to outlive on skinny revenue margins and few orders.

“If the present pattern continues, I’ll quickly must shut down the manufacturing facility,” he mentioned.

By Manoj Kumar, Rajendra Jadhav

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