By Nitin Mittal – Founder & CEO, SOLV
India is the 2nd largest producer of Textiles & Apparel in the world, after China.
The Textile & Apparel Industry in India is in itself, one of the oldest industries and among the highest in terms of output, investment and employment. The sector today employs 100 million+ people directly & through allied sectors, contributes to 5% of Global trade and earns USD 40 billion+ forex, apart from substantial revenue contribution towards the country’s tax revenues. With direct linkages to the rural economy and the agriculture sector, it is estimated that one in every six households in India is either directly or indirectly dependent on it for livelihoods.
As the nation is undergoing a COVID-19 scare, there is an evident fall in apparel sale. With the closure of shopping malls and stores due to lockdown imposed by the government, and the focus of people shifting from buying lifestyle products to essentials like food and personal care, India’s apparel sector is witnessing a dip in revenues. This sector is in a crisis which must be managed to sustain it.
Today the growth of the Textile & Apparel segment in India is dependent on 20 Million+ MSMEs.
25% of jobs may be lost in Textiles & Apparels Industry and Millions of Small businesses may shut shop in the next 6 months due to the COVID19 Pandemic
Grim Situation in South India
South India is famous for its textile industry, especially production.
Coimbatore, Tirupur, Salem and Erode in Tamil Nadu, known for this textile belt gobally , generate export revenue of over ₹25,000 crores. Tirupur alone is generates over ₹11,000 crores from more than 10,000 manufacturing units there. In Tamil Nadu there are 4.50 lakh power looms and is the second large to Maharashtra. Tamil Nadu alone represents roughly 45% of India’s entire spinning capability, 22% weaving and 70% of the knitted apparel production capability. Tirupur singlehandedly contributes to almost 50% of total knitted textile and clothing exports, followed by Ludhiana, Kolkata and Delhi NCR.
However, the crisis has brought the production to a grinding halt, because:
– receivables and new business are affected severely
– existing orders are getting cancelled or are on hold indefinitely, especially because global trade is yet to begin in the segment again
This has had a massive impact because almost 36% of the produce from Tirupur is exported to Europe and 34% to the US, and the remaining 30% to other parts of the world.
Double Whammy for Offline Stores
As it is the new coronavirus was plummeting sales, the covid-led shutdowns couldn’t have had a worse timinig, with regards to supplies and inventory. For most apparel retailers, the spring summer collection has arrived in stock. Now, with the current scenario – inventory levels are high, and footfalls are zilch – especially at the brick and mortar stores.These businesses are looking for ways and means to reduce the financial strain, which can be done by –
· managing vendor payment cycles
· working out the delay in rental pay outs
· cutting down on extra expenses
Potential Impacts of COVID-19 on the entire Textile & Apparel Industry Value Chain
· Cotton – Prices are speculated to take a dip
· Man-Made Fibre – Prices of imported man-made fibre is expected to surge by approx. 30% by Sep 2020 due to China’s production on halt
· Fabric – Due to decline in exports, the production is expected to decrease
· Apparel – Due to decline in global demand, the production is speculated to decrease by approx. 18%
· Yarn – Accounting for 29% of India’s textile trade – the demand and production have taken a hit. Its production is expected to decrease by approx. 15% in the coming quarter
· Home Textiles – Due to limited or no global contact, this industry has very less impact of downfall triggered by COVID-19. Since, masks, medical gowns and PPE (personal protective equipment) have a high demand, many home textiles companies are pivoting their operations towards PPE production
Online Retailers Holding the Fort
In comparison to offline stores and malls, fashion ecommerce online stores are operating with an intent to stay connected with their consumers during this tough phase to build stickiness and are also shfting their focus to build a demand pipeline through advance orders.
Manufacturers along with Industry Bodies are Recalibrating Strategies for Utilization of Excess Capacity
Along with majors in the industry like Welspun and re-focussing handloom & khadi industry towards mask production at state level, the governnment and the industry together are coming up with innovative ways to utilize excess capacity while also catering to the urgent demand of WHO recommended critical health protective gear manufacturing.
To protect the textile manufacturers in India from crippling levels of bad debt, what is it that policymakers should do? Broad thoughts below:
· Direct Wage Support: While the government may not be able to fund the daily wages in every sector, providing textile industry the wage support of ₹5000- ₹7000 per worker for at least one month should be helpful in warding off the problem of layoffs and unemployment to a large extent.
· GST Refund: The faster way to provide support to a larger group of stakeholders is to refund GST payments made in the last six months. This will cover almost all industries – handloom weavers to shopkeepers and traders. The process has already begun but needs to be speedened to ensure cashflow is available to the micros and small players to sustain themselves, at least for the next 3-6 months. Once the lockdown is lifted, the government could offer a cut on GST rate on all textile products until the industry recovers properly.
· Incentives for the Export Sector: Given the pandemic, the export will be worst hit, thereby losing further market share. Incentives such as duty drawback on exports made in the previous Financial Year and the current should be considered.
Also interestingly, this is the time peipeline for domestic demand for winter wear that was mostly imported could be sufficed by capacity built by manufacturers in India.
· Revised credit appraisal lens: Guidelines for loan approval on the basis of credit rating need to be reviewed. Alternate credit lending models for the segment need to be considered seriously in order to fasten credit infusion in the segment.
· Tax compliance: Given the nationwide shutdown, deadline for taxes should be extended. Also, because of drop in demand, the taxes need to be reviewed to minimise the impact.
· Benefits to yarn and fabric: Rebate of State and Central Taxes and Levies (RoSCTL), IES and the Merchandise Exports of India Scheme (MEIS) should include cotton yarn and fabrics since the segment supports more than 60% of the textile and apparel segment jobs and more than 80% MSMEs.
· TReDs compliance for cash-starved businesses: Trade Receivables Discounting System (TReDS) is a digital platform to support micro, small and medium enterprises (MSMEs) to get their bills financed at a competitive rate. Up until now, companies with a turnover of greater than ₹500 crore int he segment were mandated to be on the platform. However, the bar should be reduced to cover ₹100-₹250 crore turnover companies too, to protect the interests of smaller suppliers working with them.
Originally published here.