High stakes at peril if timely assistance not forthcoming

14 Jan '09

5 min read

The Indian textile industry is going through a very big crisis. At stake is the Rs 1,000 billion invested in the industry in the last few years going awry. According to a presentation of the Confederation of Indian textile Industry, it will prove to be a catastrophe of sorts if timely help is not provided by the government to the sector.

The stakes are very high. The biggest stake is the direct and indirect employment generated by the sector which touches 35 million directly and 47 million indirectly and exports from India in the last fiscal year (2007-08) amounted to US $22 billion and accounted for 4 percent of the world trade from the sector.

The textile industry also contributes 14 percent in the form of value addition in the manufacturing sector. The industry has the potential to create another 12 million jobs of which 5 million would be direct jobs. It also carries the potential to reach an export turnover of $50 billion and contribute to 6 percent of global trade, all by 2012.

But since the last fiscal year (2007-08), the textile industry has been affected by a lot of external factors and not of its own making. The Indian rupee appreciated considerably and interest costs climbed northwards. The rise in crude oil prices also increased the cost of raw materials to a large extent in the same period.

To make matters worse the global economic crisis unfolded in the second half of 2008 which led to a demand recession in global markets and has impacted the industry to an extent never witnessed before. To add fuel to an already raging fire, the government increased the MSP on cotton by 25-40 percent, leading to hike in prices of another vital raw material.

There also has been an inordinate delay in releasing TUFS and TED payments leading to liquidity crisis among the industry fraternity. The sector has been reporting negative export and production growth rates in the last few months leading to huge losses for most and marginal profits for the few.

There are reports of job losses reaching 700,000 in the last few months from the industry and are expected to touch the 1 million mark by the end of the current fiscal (2008-09). But as there are negatives, there are a few positives too. This could be a golden opportunity for the industry to consolidate and turn in to an opportunity of sorts provided the government makes help available at the right time.

The industry is shifting out of North America, Europe and Japan and to add to that China, Pakistan and Turkey are going through a very difficult period, which is leading to business shifting to other Asian countries like Vietnam, Cambodia, Bangladesh and Sri Lanka, which can be directed to India as impact of global crisis is not so severe over here.

The impact of the two stimulus packages declared by the government has been minimal. The package announced in December only released withheld dues and partly restored facilities withdrawn earlier, whereas that of January had a few cosmetic changes in the export incentives, while not addressing the issues of labour intensive SMEs.

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