Sunday Reading 

New Delhi, 17 December 2009

Beleaguered Textile Industry

UNCERTAIN TIMES AHEAD

By Radhakrishna Rao

The vibrant Indian textile industry, a major foreign exchange earner and one of the largest employers in the country, is now confronted with the bleak prospects of massive job losses following rising cotton prices, robbing the Indian garment export of its competitive edge.

“The high prices of cotton have pushed the cost of fabric and its end product. We are now in a situation where we are forced to reject the repeat orders as we can’t justify the high prices to our foreign buyers,” regrets the Apparel Export Promotion Council (APEC). As it is, over the last six months the price of good quality cotton has zoomed up by over 50 per cent.

Against this backdrop, the APEC has urged the Central Government to curtail cotton export by increasing the export duty on cotton. This way, the export of finished products would provide the Council a greater price realization and help capture a greater share of the international garment market.  And as pointed out by a leading textile industrialist based in the dynamic textile city of Tirupur, “Domestic firms are suffering due to higher cotton prices. In particular, the spinning sector will be at the receiving end. If cotton rates do not cool off, it will definitely affect the profit margins by 5 per cent to 10 per cent.”

On another front, the Indian garment export drive is losing ground to competitors like Sri Lanka, Vietnam, China and Bangladesh. In addition to the ripple effects of the global recessionary trend, the recent Middle East debt crisis has added to the woes of the country’s textile sector. Many of the debt-ridden big Indian garment manufacturing firms and apparel companies have instead started focussing on the domestic market, where the demand for innovative and quality products is fortunately picking up.

This apart, the debt and the increasing interest rates of many of the big textile enterprises is casting a shadow on their performance. Servicing of debts has brought down the profitability of many textile firms by a significant extent. “Balance sheet pressure will continue to be a bottleneck for most textile firms and unless significant equity is infused, leverage will be a major concern,” warns an analyst (consumer and retail) at the Indian research arm of Noble Group, a British Investment Bank.

However, notwithstanding an improvement in orders from overseas buyers, many of the leading textile outfits and garment manufacturers would need at least two more quarters to sail through these troubled times. Most textile players are now banking on the return of the demand and rise in orders after a year-long lull. This is so as the dynamic apparel sector boasts of over 27,000 manufacturers, 48,000 fabricators and 1,000-odd manufacturers-cum exporters.

Meanwhile, Union Textile Minister Dayanidhi Maran has driven home the point that there is an urgent need to attract and sustain foreign direct investment (FDI) in the textile sector if India is to achieve the goals of employment generation and technology up-gradation, besides attaining a four per cent share in the global trade in textiles and clothing. “The Indian textile and apparel market is currently valued at US $40-billion. Most of the global apparel retailers including JC Penny and Dockers and Target have their sourcing networks in India,” he observes.

On his part, he has made a note that the Indian textile and apparel export, which is now worth US $22-billion, is expected to register a four-fold increase to touch US $90-100 billion over the next 25 years. At least 60 per cent of the textile exports are to the US and European markets. There is an urgent need to broaden the product mix and explore new markets, while maintaining and increasing the share of Indian textiles and clothing in core markets through product innovation and diversification.

Meanwhile, analysts of the textile industry are optimistic of an increasing volume of foreign investment flowing into the textile sector through the direct route. Some of the areas where the FDI is expected to rise include apparel sourcing, fabric production and textile machinery manufacturing. Foreign players are interested to invest in India in varying capacities. They are interested in setting up Greenfield machinery units as India truly lacks in the sector. Apparel sourcing hubs are also one of the sectors which are attractive for these players.

As things stand now, exports make for around 40 per cent of the value of the Indian textile industry. However, with India losing ground to the smaller countries in lucrative markets of the US and Europe, over a million jobs have been lost in the sector, mostly in the labour-intensive garment and apparel units. Indeed, as pointed out by the APEC, the Indian garment products are over 20 per cent costlier than those supplied by competing nations such as China, Vietnam and Cambodia.

Given the fact that around five million people are employed in the garment industry, the need to boost the prospects of the sector with a particular focus on safeguarding their livelihood opportunities has become all the more pronounced. There is a demand that the government introduce a special package of effective measures to bolster the sagging spirits of this industry. It could be in the form of making available interest-free loans for investment in machineries as well as zero duty on import of capital goods.

There is no denying the fact that the Indian textile industry occupies a place of prominence in the country’s economy. The trump card of this industry is a strong raw materials base, which is supported by a skilled labour force. But the high cost of power supply as well as load shedding resorted to by the electricity boards in many States, has hit the textile industry deep and hard. Moreover, the industry is required to make a huge investment on real estate as part of the cost of setting up a production facility. In contrast, the investment on real estate is next to nothing for a textile production unit in rival China.

The textile industry which is multi fibre-based using cotton, jute, wool, silk and synthetic fibres, accounts for four per cent of the Gross Domestic Product. However, the Achilles heel of the Indian textile industry is the fragmented nature of operations. As a result, small textile units fail to make it big in the price sensitive markets—both domestic and global. –INFA

(Copyright, India News & Feature Alliance)