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India’s textile and apparel industry faces crisis for high inflation

Consumers in the U.S., Europe, and other major markets have cut spending on apparel after record-high inflation following the war in Ukraine, causing India’s textile and apparel industry to face a crisis. The domestic market is also sluggish.

India’s textile and apparel industry faces crisis for high inflation
Figure: India’s textile sector, which employs more than 45 million people, anticipates that the crisis will continue well into 2023.

India’s textile sector, which employs more than 45 million people, anticipates that the crisis will continue well into 2023.

Manufacturers say India’s exports have fallen for five consecutive months – down more than 15 percent year-on-year to $3.1 billion in November. Domestic sales are sluggish despite strong growth in the overall economy because of higher costs and cheaper imported apparel.

After bumper sales earlier this year, local textile factories are now cutting output – production fell 4.3 percent in the July-September quarter, raising concerns among policymakers. A McKinsey report last month found that after 18 months of strong growth in mid-2022, global retail sales of apparel fell on high inflation and depressed consumer sentiment.

Textile manufacturers along with footwear, furniture, electronic and electrical manufacturers have suffered as companies struggle to cover rising input costs, while consumers have cut spending 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 have fallen by about a third, and domestic demand remains weak.

Apparel Export Promotion Council Chairman, Naren Goenka said, “We see tough times for at least the next six months as orders from key markets including the EU and the US have dropped significantly, inflation and global headwinds are also hitting domestic sales.”

Cotton prices have fallen nearly 40 percent to a record high in 2022, but profits have been squeezed by lower sales in the domestic market, an Ahmedabad-based garment manufacturer said.

“Bank loan interest rates have gone up along with labor costs, but my sales have gone down,” he said, adding that domestic cotton prices were higher than global prices and manufacturers could not compete with cheaper imports from Bangladesh.

Cotton Association of India (CAI) President Atul Ganatra said, local cotton is at least 10 percent more expensive than global standards. “The government should withdraw the 11 percent import duty on cotton so that local textile mills can create a level playing field. This will allow mills to import cotton from abroad which is about 10 cents less per pound than local supply.”

Shares of leading textile companies such as Arvind Ltd, Vardhman Textiles, Trident, and Nahar Spinning Mills have fallen between 20 to 40 percent this year, while the benchmark Nifty has risen over 7 percent.

With an annual production of $8 billion for domestic and overseas markets, the local industry fears it will see exports drop by one-third this year from $4.5 billion in 2021/22.

Though there are some orders for next summer, major retailers are seeking heavy discounts to pick up pre-booked orders, said Raja Shanmugham, former president of the Tirupur Exporters Association.

He added that sales in the domestic market, which usually picks up during the festive and wedding season starting from October, was also weak this year.

Many smaller firms have cut workforces as they say they are operating at less than 50 percent capacity. If current trends continue, many factories may soon have to shut down. The industry has sought duty-free cotton imports, interest subsidy on bank loans and expansion of production-related incentives to combat the crisis.

The report is based on Reuters

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