The covid-19 crisis has hit the Indian economy at a time when growth is at its lowest in a decade, investments are shrinking, and a consumption recovery is sputtering.
The covid-19 pandemic has rewritten the way the world operates in a matter of weeks. The rapid spread of the virus has brought the world to a standstill: streets are empty, offices have shut down and people are locked inside their homes. The health crisis is taking its toll on the global economy and has triggered an unprecedented crisis in the textiles and apparel industry. From global store closures to fashion show cancellations, covid-19 is disrupting the industry. The virus is having dire repercussions for Indian manufacturers—supply chain disruptions, declining exports and uncertainty in orders.
Textiles Industry Faces Hurdles
# Retail doors closing globally instilling uncertainty in future demand
With the increasing coronavirus scare across the globe, retail stores are shutting down to contain the spread. Brands are facing a slowdown in their sales and preparing themselves for potential revenue losses. The virus has spread rapidly in the EU and US, the two major markets for apparel, and led to a significant reduction in demand. The EU textiles and apparel industry is expecting more than a 50 per cent drop in sales and production this year. In the US, apparel stores have already seen a decline of 10 per cent in sales in February–March since the onset of the outbreak.
With uncertainty on the duration of the pandemic, a prolonged impact on global apparel demand is expected. A large number of buyers have cancelled running orders and frozen future buying as well. Buyers typically start shipping in goods for the holiday season from Asia as early as in June. However, with the emerging health crisis and a period of uncertainty ahead, the covid-19-induced economic slowdown could end up hitting holiday sales, when many retailers make the bulk of their profits.
# Indian manufacturers stare at losses with the country’s lockdown
Production in the Indian textiles and apparel factories came to a halt following the nationwide lockdown. However, for Indian factories, trouble began in February with supply shortages from virus-hit China’s textiles sector. Nevertheless, just as China restarted production—raising hopes of garment manufacturers of getting operations back on track—demand collapsed as lockdowns around the globe forced retailers to shut their doors. The textiles industry has been hit hard with brands holding payments and cancelling all orders.
The domestic market was probably the last oasis, but with the shutdown of all stores, manufacturers are left with no option. It is expected that this disruption will reduce market demand by around 15–20 per cent, resulting in largescale losses in production and jobs.
# Lockdown hits livelihood of workers
Temporary closure of factories amidst the lockdown in India has forced manufacturers to hold back wages to balance out their losses. In India, the textiles and apparel industry predominantly employs migrant workers from different states and a large workforce comes from nearby villages by availing of public transport. The lockdown has forced migrant workers to return to their native places and bringing these workers back to the factories when production commences will be a challenge.
# Raw material prices decline
India’s cotton yarn exports, especially to China, have declined significantly in the past two months. This has led to the surplus cotton yarn being diverted to the domestic market. As a result, cotton yarn prices have witnessed a decline of 3–5 per cent during the past month. With reduced demand and falling oil prices, there has been an impact on polyester prices as well. Polyester prices have reduced by more than 20 per cent due to reduced demand and has resulted in significant losses for fibre players.
China slowly getting back to business
After a two-month long production shutdown, Chinese textiles and apparel manufacturers are kickstarting operations. However, with the majority of the world still stuck on the virus curve leading to a damage in the global demand, manufacturers might find it difficult to fill their capacities due to unavailability of orders. Fashion brands sourcing from China for the autumn season usually place their orders during April with a delivery in May or June. With an uncertainty in the situation and the lockdown still ahead, buyers are hesitating to place any new orders and are in fact either cancelling or putting their existing orders on hold. Meanwhile, China has increased the production of medical textiles like masks and other personal protective equipment (PPE) to export to virus-hit countries.
# Fashion events stalled
The coronavirus pandemic has put a halt to international travel, and this has immediately affected the annual fashion events including fashion shows, trade shows and conferences. These events draw huge crowds and allow buyers to see the latest fashion trends. Most of the lined-up fashion events of 2020 have been either postponed or cancelled. The postponing of these events may slow down new investments and affect the businesses of existing stakeholders.
Industry Seeks Relief to Mitigate Crisis
Amidst this pandemic, the textiles and apparel industry is in dire requirement of a relief package to survive the crisis. Exports as well as domestic sales have come to a grinding halt. At the current rate, markets are unlikely to return to their normal buoyancy for at least 10–12 months and payments are likely to be delayed by retailers, who are fighting their own battles for survival. Several measures can be taken up immediately with some modifications in existing schemes and can be implemented soon. Some of the relief measures that are expected by the industry include:
Clearing pending subsidies:
Release of dues under TUFS, export subsidies (RoSCTL/MEIS), and GST refunds, on immediate basis;
- Extension of soft loan equivalent to these government dues that could be adjusted as soon as the government clears the dues.
Deferment of interest charge for six months on all loans;
Moratorium for repayment of principal and interest for oneyear;
Reduction in bank interest rate by 3%;
Provide at least 30% additional working capital at lowerrates without any collateral;
Collateral-free lending for loans up to ₹2 crore and maximumcollateral of 35–40% for lending beyond ₹2 crore;
- Relax RBI norms for declaring the defaulting unit as NPA for one year.
Cover all textile, garments and madeup products underRoSCTL, IES & MEIS benefits;
Increase Interest Equalization Scheme from present level to5% for all garments and made-ups for FY 2020–21 and extend this benefit furtherto all other textile items not covered in the scheme;
- Provide 3% additional ad hoc export incentive for one year.
Exemption for all raw materials, dyes & chemicals,intermediaries, spares, accessories, etc from basic customs duty andanti-dumping duty, if any;
Defer payment of EPF and ESI contributions for 6 months;
Extend support to industry for payment of salaries and wagesto workers during lockdown;
- Textiles being a continuous process and a predominantly export-oriented industry, advise state governments to permit units run with in-house workers with prescribed pre-conditions.
What Should the Industry Expect?
Since the pandemic is still in an expanding phase, the ultimate severity remains unknown. However, some foreseen changes will shape the industry once the coronavirus dust settles.
Bruised demand in domestic market and exports
The black swan event has affected the Indian textiles and apparel industry, in terms of both trade and domestic consumption. There is a steep reduction in demand owing to a sudden halt of global trade and domestic sales due to the closure of retail stores. The virus originated in China and later spread to the EU and US. These are huge markets for Indian textiles and apparel products and hence, the Indian textiles value chain is bound to face adverse repercussions of the pandemic. Buyers are expected to postpone orders in the coming six months and will initially demand smaller order quantities at very tight margins to recover from the reduced sales in the previous weeks.
With malls and shopping centres closed and movement restricted, domestic sales have withered. Brands are looking at very low consumer sentiment and a steep decline in consumption in the coming year. Sales have taken a downturn by as much as 70 per cent since fears over the virus intensified. Even online purchases—otherwise growing prior to the outbreak—have declined by 15 per cent as consumers cut back on discretionary spending. Retailers and brands have already started halting production lines, delayed season releases and cut buying budgets to prepare for these eventualities.
Opportunity for India as brands look to reduce dependency on China
China manufactures more than a third of textiles and apparel globally. China was the initial epicenter of the coronavirus outbreak and the production lockdown enforced in the country vastly disrupted the global textiles and apparel supply chain. Brands that sourced goods solely from China were in a fix and were forced to arrange for substitute vendors in other countries within a short timeframe. Some brands will adapt the strategy of diversification and reduce their dependency on China to prevent such a situation in the future. The move of shifting out of China was heightened due to an increase in manufacturing costs and tariff issues with the US. The supply chain gap developed due to this pandemic has added more weightage to this strategy. Brands will explore alternative options such as Bangladesh, India, Vietnam, Cambodia or any other Southeast Asian supplier. India can play its cards of competitive manufacturing costs and presence of complete supply chain to present itself as a credible alternative.
Increased focus on ecommerce sales and digitalisation of supply chain
Malls and retailers took the step to close their stores to contain the spread of covid-19. But the ecommerce channels of these stores are still operational in certain countries. Social distancing has highlighted the importance of online purchasing as a safe alternative to visiting physical stores. This shift could lead to a changed buying behaviour after the pandemic and has the potential to build longtime ecommerce customers.
Brands and retailers are further driven to incorporate a digital strategy in their buying process. Online marketplaces like Joor are expected to become more popular as brands and retailers look to maximise digital options of showcasing their products and facilitating the buying and selling process. Even fashion shows are going digital to keep the industry connected.
The Shanghai Fashion Week was streamed over Alibaba to refrain from making losses and many other designers are displaying their new collections through social channels and websites.
Emerging demand for medical textiles
Sales of medical textiles including surgical masks and protective clothing has jumped phenomenally. Countries across the globe are importing large quantities of such products to battle the infectious disease. The supply of these products is not able to keep up with the rising demand. The rapid spread of covid-19 has sensitised people towards hygiene and healthcare. The demand for medical protective gear such as masks, disposable gloves and hygiene products such as wipes is expected to surge and sustain even after the end of the coronavirus pandemic. This is a lucrative opportunity for the textiles industry in the near future.
How Can Indian Industry Recover?
The Indian textiles and apparel industry will need to gear itself to fight the economic consequences of covid-19. Manufacturers need to maximise their internal capabilities and focus on building their efficiencies. This will enable them to work with the anticipated shorter lead times and tight margins.
India has the capacity and competence to gain share in its core cotton-based categories and women’s fashionwear categories with value addition (embroidery, schiffli, etc). It will be crucial to focus on manufacturing excellence and improve cost-competitiveness to ward off business risk from other manufacturing nations.
Product diversification beyond cotton is also imperative for the industry. In medium to long-term, Indian apparel exporters need to invest and develop expertise in MMF garments including winterwear, outerwear and performance wear. Companies may also focus on planning for the winter or next spring summer season and target the channels of value retailing and ecommerce, which are expected to grow in the near future. Indian companies should also look out for new markets beyond the US and EU like Japan and South Korea and adopt digital methods of connecting with buyers.
Companies could also explore emerging medical textiles (surgical gloves, masks, gowns, wipes, etc) and other textile items required for healthcare facilities like hospital bedsheets, mattresses, etc. With countries’ increased focus on healthcare, medical textiles is likely to see a surge in demand.
This unforeseeable humanitarian and financial crisis has hit the Indian economy at a time when growth has slowed to its lowest in a decade, investments are shrinking and a consumption recovery is sputtering. While there is no denying that the virus needs to be contained, including a complete lockdown, the need to manage its economic aftermath is just as urgent. However, textiles and apparel companies need not lose hope and need to develop strategies to prepare themselves for when the markets open again, hopefully well in time before the festive season.
This article was first published in the May 2020 edition of the print magazine.