India : Textile & clothing Industry in deep crisis

Textile and clothing industry, which is a powerful tool for bringing about inclusive growth by providing gainful employment and steady income to the millions, is engulfed by an unprecedented threat triggered by a rising rupee, which eroded its competitive advantage in the export market.
Threatened by the gloomy prospects and receding bottom lines, textile and clothing units across the country have cut back the production and some are even contemplating exit, which has already adversely affected not only the incremental growth in employment in the sector but also the existing jobs.
This sad state-of-affairs of the industry and its bleak prospects, have brought together all textile and clothing business associations in the country in one platform to voice their grievances for a speedy resolution of the impasse that they are faced with.
The associations that are jointly taking up the issues of the industry are CITI, AEPC, Texprocil, MOA(Mill Owners’ Association), NITMA, PDEXCIL, RTMA(Rajasthan Textile Mills’ Association), SIMA, SRTEPC, etc.
Dwelling on the gravity of the crisis, the industry says that in the month of April 2007, export of textile products declined by 18.25 per cent as compared to April 2006. In the previous years, exports from the industry were growing between 15 and 20 per cent.
With the exports from the sector caught up in a negative growth trajectory, the incremental employment generation has dropped in the last year. For the month of April 2007 alone, the jobs lost on account of drop in exports is estimated at 35,000.
In the subsequent months, this figure would have increased considerably since the pace of appreciation of rupee was sharper. Industry estimates say that total loss of jobs during the year will be close to 5 lakhs.
Significantly, more than 80 per cent of India’s textile exports are dollar denominated. Exporters, historically, are booking their exports in dollar terms even in hard currency areas other than USA.
As per the latest information compiled, rupee has appreciated by about 15 per cent vis-a –vis dollar since last year. As things stand now, the apprehension is that the rupee may climb up a few more notches.
That will exacerbate the strains of the exporters, compelling many of them to pull the shutters, leading to millions of job losses.
Steep appreciation of rupee has come at a time when the interest rates are moving up and the transaction cost of the industry is very high.
This has adversely affected the tempo of growth of the industry in general and exports in particular due to the inherent handicaps of the Indian industry vis-vis its competitors in Asia, such as low productivity, erratic power supply, infrastructure bottlenecks etc.

Dip in exports has created a glut in the domestic market, which has already affected the domestic suppliers in terms of their profits and accumulation of inventories.
Textile and clothing industry has very strong backward and forward linkages. One important linkage is the cotton farmers, who have switched over to the crop in anticipation of higher demand and better prices.
Their hopes are dashed in view of the fast enveloping glut in the industry. Also, textile equipment manufacturing industry, which has recorded solid growth in the previous years, is concerned about the sluggish demand.
The entire supply chain, -movement of traffic from manufacturing hubs to export loading centers, such as ports and airports, which gainfully helped in detailing a huge fleet of carriages, wagons, ships etc -would face slow down in their demand.
Calling for urgent help from the Government to tide down the situation, textile industry leaders said that a string of policy interventions are required to address the problems.
There should be proactive approach on the part of the Government, SEBI and RBI to calibrate the in flow of foreign exchange, which makes rupee stronger day by day.
Also, a more proactive policy towards investing a part of the huge accumulation of foreign exchange reserves abroad should also be thought of.
On the domestic policy side, the industry urges that the Levies at the State Governments and municipality levels amounting to 6 per cent should be refunded to textile and clothing exporters. Alternatively, Duty Free Scrips may be introduced at suitable rates to compensate for the State levies.
Pre-shipment and post shipment credit may be made available for the textile industry at 6 per cent. Post shipment credit may be extended from the present three months to a period of one year.
Service Tax applicable to all export related activities should be withdrawn immediately. A moratorium of one year may be allowed on existing loans in respect of the principal amounts so that the possibility of these loans turning into NPAs can be averted.
It is also necessary to ensure that all dues from Government are paid to textile exporters without any delay. In cases, where delays do occur interest should be paid to the exporters so that their working capital erosion gets mitigated.