By: Shramana Ganguly Mehta, Ahmedabad


Capacities May Be Further Cut By 5-10% by Indian Textile Industry


DOWNHILL RIDE

  • Fiscal stimulus perceived as mere glucose administered to the critically-ill textile sector

  • India might manage mere $8 billion in 2008-09 against $9.6 billion in 2007-08

  • Apparel export markets of US, EU and Japan decimate spends

  • Several companies likely to declare themselves 'sick', says SIMA

With global apparel consumption hitting rock bottom and recession in the domestic market staring at its face, a bleak year awaits the Indian textile sector. However much the Centre might want the textile sector to rejoice over the recent sops, the sector is passing through tough times.


With the consumer in no mood to loosen purse strings at the moment, cluttered retail shelves are feared to put brakes on textile and clothing production as the industry downs capacity by 5-10% in days to come.


With 60% of India's apparel exports meant for the consumption in the US, EU and Japan, the Indian textile sector is badly hit as those nations reel under acute financial crisis. With practically no demand from those countries and an equal reluctance from domestic consumers to pick up apparel, it is impractical for textile players to continue production the way they had been all this while.


"It would not be surprising to see Indian textile sector under-utilising capacities by 5-10% in six months to one year," points out Chairman of Confederation of Indian Textile Industry R. K. Dalmia.


While the Apparel Export Promotion Council predicts that India is unlikely to achieve 20% growth target in 2008-09 and might manage to clock $10 billion in the current fiscal, apparel exporters are in no position to even dump goods in the domestic market (like they did in mid-2008 to ease the rupee pressure) considering retailers are not picking up stocks from their suppliers. Retail apparel sales have shrunk and large format retail chains, faced with rising inventory, have stopped placing new orders.


"The Indian market is packed and Indian retail chains are not lifting stocks meant for domestic consumption and they would not like to clutter retail shelves by lifting export surplus at this point of time," added sector analyst Prashant Agarwal of Technopak Advisors.


Having lost 7 lakh men to volatile cotton prices, power crisis and recession already, the sector that is on the brink of losing additional 5 lakh jobs in near future sees little respite from the fiscal package announced by the Centre. Mr. Dalmia pointed out that the government has walked only half the distance in meeting the urgent requirements of the industry.


"The major benefits given for textile and clothing sector are either by way of releasing withheld benefits or by way of restoring withdrawn benefits. In the case of TUFS and CST/TED payments, reimbursements which had been withheld for a long time will now get paid on the basis of the fund allocation provided in the package. In the case of export credit, subvention of 4% had been withdrawn from October 2008, out of which 2% has been restored now," he said.


"Restoration of drawback rates which had been steeply reduced from September 2008 onwards, a moratorium of two years for repayment of principal amounts against term loans in view of the working capital problems of this loss making industry, and the restoration of the remaining 2% of subvention for export credit are the major requirements that need immediate attention. Further, the restored subvention should apply from 1st October 2008-the date from which it had been withdrawn earlier. There is a need to dispose the cotton procured by government promptly to Indian mills at international prices, in order to avoid an artificial scarcity of cotton in the market," Mr Dalmia said adding that incentives will give psychological boost to the sector provided the sentiments in the market improve.



 

For the textile sector in South India that has lost close to 2 lakh people from the spinning sector alone in last 3 months, the incentives are nothing more than "glucose to a critically-ill patient (textile sector), said the secretary general of The South Indian Mills' Association K Selvaraju.


If the government hopes the package to revive the sector from its sickness, it is mistaken, he added. The industry is reeling under unprecedented crisis and allocation of Rs.1, 400 crore to clear TUF arrears will provide working capital to industries. However, in wake of impending problems like cotton and power crisis, our problem is far from over. "Not just lay offs, several mills are feared to declare themselves sick in days to come," he added.


Unimpressed by the package, the subcontinent's apparel exporter Gokaldas Exports Ltd anticipates 15% fall in year-to-year growth in apparel exports. While Bangladesh is expecting a 23% year-to-year growth in apparel exports, India might manage mere $8 billion in 2008-09 against $9.6 billion in 2007-08, said Executive Director of the Company Rajendra Hinduja. "While we were banking on EU market to drive growth, our order position is bleak beyond January-February 2009. The fiscal package gives mere 2% withdrawal on subvention while the hike was 4%. Likewise, we expected the government to take duty drawback to August levels to aid the ailing sector which hasn't come in. Whatever cash flow will happen now is nothing but old payment defaulted by the government all this while," he said.


Stimulus package to have minimal impact


Ahmedabad: Stimulus package for the textile sector announced by Union government will have minimal impact on the sector in Gujarat, those associated with industry said on Monday. Government on Sunday allocated an additional 1,400 crore to clear entire backlog in technology upgradation scheme (TUFS) as a part of industry stimulus package. There are over 4,000 small and big entrepreneurs enrolled under the scheme in Gujarat. "Stimulus package will have no impact on textile sectors of Gujarat when entrepreneurs are facing tough times due to global slowdown as the package only speaks of giving of loans under technology upgradation," Textile Association of India's city chapter president TL Patel, said. "Entrepreneurs who took loan under TUF are unable to repay the amount due to slack international market and poor off take of exports this year," Patel said. -PTI



Written by Shramana Ganguly Mehta in Ahmedabad


Originally published in "The Economic Times" dated December 09, 2008