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Published on: Dec. 28, 2022, 3:09 p.m.
Textiles & Apparel: Difficult times ahead
  • The ongoing slowdown takes its toll on the textiles hubs

By Arbind Gupta. Assistant Editor, Business India

The $140 billion domestic textiles & apparel industry is passing through a challenging period and experts are of the view that the situation is unlikely to improve soon. They feel that it may take at least two-three quarters before things start looking up again. The two major markets – the US and EU – accounting for over 60 per cent of the Indian textiles and apparel demand, have remained sluggish for the last over six months, due to headwinds arising out of surge of inflation and uncertain geopolitical scenario. Consumers in these two and other markets have cut down spending on clothing, as they have to spend more on other household expenses. 

“After 18 months of robust growth through mid-2022, global retail sales of clothing have been dragged down by high inflation and depressed consumer sentiment, and prospects for 2023 look gloomy,” says a McKinsey report. During April-October 2022, textile exports registered a y-o-y decline of 20.78 per cent to about $11.3 billion.

However, apparel exports witnessed a growth of 6.67 per cent to reach $9.1 billion during the same period. Cumulative exports of textiles and apparel during the first seven months of the current fiscal (April-March) were down 10.49 per cent to $20.5 billion. Share of textiles and apparel in the country’s total merchandise exports declined to 7.68 per cent in October 2022, as compared to 9.72 per cent in October 2021.

This slowdown has happened at a time when, in 2021-22, the textiles & garment exports (including handicrafts) clocked an all-time high of $44.4 billion after two consecutive years of decline. Exports stood at $30 billion in 20-2021 and $34 billion in 2021-22.

While the exports have slowed down, the demand in the domestic market has also not kept pace as expected. Despite strong growth in the overall economy, domestic sales are sluggish because of high costs and cheap imported garments. Sales in the domestic market, which usually pick up during the festival and marriage season starting October, were weak in 2022. The recent fears of Covid resurgence is further weakening the overall sentiment. 

“The situation is challenging and expected to be unchanged for a few more months now,” says Sanjay Jain, managing director, TT Ltd & past chairman, Confederation of Indian Textile Industry. “Both global and domestic markets are sluggish due to multiple factors. Global inflation is weighing heavily on the textiles and apparel sales, leading to slowdown in demand. Additionally, manufactures and exporters are faced with higher interest rates and surge in input costs. All these factors have tuned the overall condition very demanding”.

The ongoing slowdown is taking its toll on manufacturing, with most of the textiles hubs, as also individual manufacturers, going slow. In fact, many of these units have cut down their production and are running at 40-50 per cent capacity utilisation, with less number of shifts, in response to large foreign buyers placing smaller orders.

Surging inflationary pressure on input cost and higher interest rates have further added to the woes on the production side. Besides, local raw cotton prices are 10 per cent more expensive than global benchmarks. The cotton textile industry is demanding scraping of the 11 per cent import duty on cotton so that local textile mills can have a level playing field.

Experts believe that, if the situation further worsens or prolongs for a longer period than expected, the industry may force to cut down on their workforce. It may be noted that the T&A industry plays a key role in the overall economic growth, as it is also the second most employment generating sector, after agriculture. Data suggests that the industry employs about 45 million people directly and another 60 million through allied sectors.

Of all, women make up the largest workforce, accounting for 60-70 per cent of the total manpower. The industry holds a 4 per cent share of the global trade, accounting for 5 per cent of GDP and 13 per cent of the country’s export earnings.

  • Both global and domestic markets are sluggish due to multiple factors. Global inflation is weighing heavily on the textiles and apparel sales, leading to slowdown in demand. Additionally, manufactures and exporters are faced with higher interest rates and surge in input costs. All these factors have tuned the overall condition very demanding

“The domestic T&A industry plays a key role in shaping up our economy,” argues G.V. Aras, strategic business advisor & independent director for many leading textile companies. “However, we are passing through a difficult phase. Worsening external factors have adversely impacted the demand. Global buyers are cautiously buying as consumers are going slow on their clothing front. It remains to be seen how things pan out going ahead”.

 Facing pressure

“Both the US and EU markets are down,” affirms Kumar Duraiswamy, joint secretary, Tirupur Exporters Association. “At Tirupur, our exporters are facing pressure due to slowdown in demand. On the one hand, the demand has declined while, on the other hand, input cost and interest rates are on the rise”. The knitwear hub of Tirupur exports almost 50 per cent of its production of around R60,000 crore. The garment centre employs over 600,000 people in its manufacturing activity.

Amidst all these headwinds, the Union Minister for Textiles, Piyush Goyal, while addressing members of Export Promotion Councils has said that in the next 5-6 years, Indian textile exports are expected to reach $100 billion, from the current $42 billion. He also added that it will take the industry’s combined domestic and international output to $250 billion.

Experts also believe that, over the long term, the industry is positive. The textile sector has undergone a transition over the decades. In fact, the process of transition is still in progress backed by government’s recent policy initiatives, which are aimed to remove the fiscal and structural anomalies and make textile value chain more competitive and robust.

Experts firmly believe that the domestic textile industry is favourably placed and all set to leave its market in the global market. As per the report of Wazir Advisors, the $140-billion textile industry, which has grown at a CAGR of 8.3 per cent in the last few years, is expected to grow at 11 per cent CAGR to reach a size of $225 billion by 2026.

The recently-announced production-linked incentive (PLI) scheme for the textile sector has all the potential to transform the industry into a much vibrant set-up. With a total budgeted outlay of Rs10,683 crore, the Union government has designed the scheme with a view to provide a much needed fillip to the man-made fibres and technical textiles segments of the industry. 

The PLI scheme, in conjunction with RoSCTL (Rebate of State and Central Taxes and Levies), RoDTEP (Remission of Duties and Taxes on Exported Products) scheme and other government-facilitated initiatives in the industry, such as providing raw materials at competitive prices by removing anti-dumping duties on PTA (the raw material for polyester) and viscose staple fibre, skill development, like the National Technical Textile Mission and PM-MITRA textile parks (which will bring scale to the sector) and so on, will definitely usher in a new era in textile manufacturing and help create a more robust production base to meet the requirement of the global market.

  • If the situation further worsens the industry may force to cut down on their workforce

During all these years, Indian exporters are at a disadvantage in terms of import duty treatment as compared to countries like Turkey, Vietnam, Sri Lanka, Bangladesh, Pakistan and Cambodia in the EU and the UK markets. Bangladesh, Sri Lanka and Vietnam enjoy duty-free access to the UK and the EU, whereas Indian textiles attract an import duty of 9.5 per cent. India has been doing better than other textile exporters in markets such as the US where it is not at a duty disadvantage.

In the last couple of years, the Indian government is actively pursuing free-trade agreements (FTAs) with its major exports destinations, The India-UAE CEPA came into effect in 1 May 2022, while the India-Australia ECTA (interim trade pact) was signed into force on 2 April 2022. Meanwhile, India-UK FTA negotiations entered a third round in April last year and new industry and business taskforces were created in May to support a trade deal by year-end. Finally, the EU has sought to reach a trade deal with India by 2024, before the next electoral cycle. The first round of India-EU FTA negotiations concluded in New Delhi on 1 July 2022.

“Due to the duty disadvantage, our apparel exports have grown rather slowly over the years, even as countries like Bangladesh, Sri Lanka and Vietnam have increased their share significantly in the global apparel market,” says Rahul Mehta, past president, Clothing Manufacturers’ Association of India. “Now, with these FTAs are getting signed, we as a country should gain quite considerably at a time when many of our export destination countries are following China Plus One policy”.

Backed by the ‘China Plus One› sentiment globally, India’s textile exports is expected to grow by 81 per cent to $65 billion by 2026 from the pre-Covid level of about $36 billion in 2019, says a report by the Confederation of Indian Industry (CII) and global consulting firm Kearney. This jump is likely to generate 7.5-10 million new jobs.

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