Demand falls and crisis awakens for the Textile industry in India which is an immense cause worry for the Indian economy as the Cotton based industry in the country is the only such sector which contributes close to 2.5-3% in the country’s GDP.
Despite being given unreal numbers about “unreal growth” by few political officials, the real outcomes are far from reality. The industry is falling and sees a huge turmoil ahead of itself. The sudden speed bump; is the culmination of various reasons in the last half decade. India’s GDP grew 7.8% in the 3rd quarter of 2023, Will this worrying downfall impact the galloping economy? Let’s have a closer look at how demand has fallen in the textile sector.
Has the Geopolitical Tension decreased the demand for textile in the country?
Steep fall in global and domestic demands caused by the prolonged Ukraine-Russia war, economic slowdown in the EU, USA, and other countries, 11% import duty on cotton and ill effects of MMF Quality Control Orders that had enabled the indigenous cotton traders and MMF producers to adopt import parity pricing and making the industry uncompetitive in the global market.
Data points speaking volumes about diminishing cotton demand in the country
The average monthly textiles and clothing exports during the period April 2022 to August 2023 have dropped by 19% when compared to the previous financial year 2021-22.
The cotton textile exports dropped by 24% and cotton yarn exports dropped by 46%. The entire textile value chain particularly the capital-intensive spinning sector had to cut down its production by 30% to 40% continuously for several months which forced a majority of spinning mills particularly SMEs to become SMA1, SMA2, and NPA accounts.
Under the current crisis, apart from the regular loan repayment schedule, the ECGLS 1.0 has already increased the impact on the financials and the ECGLS 2.0 repayment to be made from October onwards, would drive a majority of the spinning mills to become NPAs.
What does the business point of view say about lowering demand?
Exempt the American PIMA and Egyptian GIZA ELS cotton from the import duty as India does not produce similar quality cotton and therefore will not affect the farmers. He has added that as India consumes around 45% of the PIMA and GIZA cotton produced per year the import duty removal is essential to sustain the market share already established by the country.
SIMA Chairman Dr. S. K. Sundararaman has said that the financial viability of the spinning mills in South India, particularly in Tamilnadu, which accounts for 45% of the production capacity, is at stake under the current scenario.
He has also highlighted the steep increase in power tariff for the SME spinning mills up to Rs.2.35 per unit and for HT and EHT consumers by Re.1.00 per unit, which has increased the cost of production significantly as power accounts for over 40% of the total manufacturing cost.
SIMA has appealed to the Government to take immediate steps to address the financial stress being faced by textile units in the country and to protect the jobs of millions of workers who depend on the industry for their livelihood.
The GOI is certainly aware of the falling market sector. What kind of aids is the Government prepared to offer to its arguably the strongest economic arm?
Govt. in action; approves worth Rs.50 cr R&D projects
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Emphasis should be on R&D for globally highly imported technical textiles items, apart from import-dependent technical textiles items and speciality fibres in India, Goyal said.
Other incentives of the Indian Govt
India’s government is likely to announce fiscal incentives for the ailing textile and apparel industry by the end of this month, partly to stave of the impact of a fall in overseas orders, a trade body revealed.
“The government could make an announcement by the end of December,” said T. Rajkumar, chairman of the Confederation of Indian Textile Industry (CITI), referring to industry representatives’ meetings with textile and finance ministry officials earlier this month.
“In a submission to the government, the industry has asked for fiscal incentives for smaller manufacturers under the PLI scheme and urged the government to withdraw 11% import duty on certain varieties of cotton, imported from Egypt and the United States, to meet specific orders”, Rajkumar said.
