India's textile industry faces tough times as consumers cut spending

Nahar Spinning Mills

16/12/2022 09:32

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      Textile exports fall for five months in row
    

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      Global prospects in 2023 look challenging - Mckinsey
    

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      Small manufacturers cut production, warn of job losses
    

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      Govt likely to announce sops for textile industry: govt
source
    

  
    By Manoj Kumar and Rajendra Jadhav
       NEW DELHI/MUMBAI, Dec 16 (Reuters) - India's $200
billion textile and apparel industry is facing a crisis as
consumers in the United States, Europe and other big markets
have cut spending on clothing following a surge in inflation
after the war in Ukraine, industry officials said.
    While the overall economy is relatively strong and is
outperforming major economies, the textile sector is a notable
exception and orders suggest the downturn will continue well
into 2023, raising the risk of layoffs in an industry that
employs more than 45 million people.
    Exports, which constitute about 22% of the industry, have
fallen for five months in a row - declining over 15%
year-on-year in November to $3.1 billion. Domestic sales are
sluggish despite strong growth in the overall economy because of
high costs and cheap imported garments, manufacturers say.
        After bumper sales earlier this year, local textile
factories are now cutting production - contributing to a 4.3%
contraction in manufacturing output in July-September quarter
that has raised concerns among policymakers. 
    The shock comes as Prime Minister Narendra Modi's government
struggles to create employment for millions of youngsters
entering the job market each year. 
    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, a McKinsey report said last month.
    In India, the manufacturing sector, contributing 16% of GDP,
has been hit by rising raw material costs and weak demand,
despite bright growth elsewhere. Manufacturing showed no signs
of growth in the first half of the current April-March fiscal
year while the overall economy, helped by agriculture and
services, expanded 6.3%. urn:newsml:reuters.com:*:nL1N32Q0X7 
        Textile manufacturers, along with makers of footwear,
furniture, electronic and electricals, have been hit as
companies battle to pass on rising input costs, while consumers
have cut expenditure on these products as they spend more on
food and fuel. 
    In the textile industry, manufacturers say higher domestic
cotton prices and other costs have hit profit margins, while
overseas orders for next summer are down by about one-third and
domestic demand remains weak.
    "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," said Naren Goenka, chairman, Apparel Export
Promotion Council, citing inflation and global headwinds hitting
domestic sales as well.
    Sahid Khan, a garments manufacturer in Ahmedabad, the
textile hub in Modi's home state of Gujarat, said despite a fall
in cotton prices  MCOTc1  by about 40% from record highs hit in
2022, profit margins were down due to lower sales in the
domestic market. 
    "Interest rates on bank loans have gone up along with labour
costs, but my sales are down," he said adding that domestic
cotton prices remained high compared to global prices, and
manufacturers were unable to compete with cheap imports from
Bangladesh.
    Local cotton is at least 10% more expensive than global
benchmarks, said Atul Ganatra, president of the Cotton
Association of India (CAI). 
    "The government needs to scrap the 11% import duty on cotton
so local textile mills can have a level playing field," Ganatra
said. "This will allow mills to have options to import cotton
from overseas which is nearly 10 cents per pound cheaper than
local supplies."
    Shares of leading textile companies like Arvind Ltd
 ARVN.NS , Vardhman Textiles  VART.NS , Trident  TRIE.NS  and
Nahar Spinning Mills  NHRS.NS  have plunged between 20% and 40%
this year, while the benchmark Nifty  .NSEI  is up over 7%.
    The industry has sought duty free imports of cotton, an 
interest subsidy on bank loans and expansion of production
linked incentives to face the crisis. 
    The government could soon consider the demands, and an
announcement is likely in the annual budget due in February,
said a government official with direct knowledge of matter,
asking for anonymity as he was not authorised to speak to media.
    FEAR OF JOB CUTS 
    Many textile manufacturers, who have frozen hiring of
workers, have warned of jobs cuts if the government fails to
provide relief soon. 
    In Tirupur, a knitwear manufacturing hub in southern India
employing over 600,000 workers, many small firms have slashed
the workforce as they say they are operating on less than 50%
capacity. 
    With annual production worth over $8 billion for domestic
and overseas markets, the local industry fears it will suffer up
to a one-third fall in exports this year from $4.5 billion in
2021/22, said Raja Shanmugham, former president of the Tirupur
Exporters' Association. 
    "There are few orders for next summer," he said, adding big
retailers were asking for heavy discounts to lift earlier booked
orders. 
    Sales in the domestic market, which usually pick up during
the festival and marriage season starting October, were weak
this year, he said. 
    Chandira Kumar, head of Sentinel Clothing in Tirupur, said
he had let go two-thirds of his workers and was left with 150,
as he was finding it difficult to survive on thin profit margins
and few orders. 
    "If the current trend continues, I may soon have to shut
down the factory," he said. 
    ($1 = 82.5050 Indian rupees)
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GRAPHIC: Falling textile exports    https://tmsnrt.rs/3WoWpwd
GRAPHIC: ndia's manufacturing output falls to a 26-month low   
https://tmsnrt.rs/3j86I9D
GRAPHIC: Textile sector's industrial production    https://tmsnrt.rs/3YnOtgl
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 (Additional reporting by Amit Dave in Ahmedabad; Graphic by
Riddhima Talwani; Editing by Raju Gopalakrishnan)
 ((manoj.kumar@thomsonreuters.com; +91(11) 49548029;))