The Re-Beginnan | Vol.2 | Issue 14
Industry Overview
Supply Side Impact
- Prices of key raw materials have remained stable; however, demand has taken a hit.
- The production had taken a downturn as demand and exports took a major hit due to the pandemic. Production has started to resume as the lockdown rules ease. Exports have also picked up pace as economies over the world start to revive.
- The textile industry employs over 45 million people (direct jobs) and a substantial number of contract labours. Plenty of low-wage workers lost their jobs and a sizable number of factories closed down temporarily due to the lockdown. It will be difficult for the labours at bottom of the value chain to get their jobs back. Some have started working again and many are still out of work due to the permanent closure of small and mid-sized textile businesses.
- Cash flows have taken a huge hit as profits shrink due to a sharp decline in yarn exports and cheap imports. Various markets around the world are now opening which will give impetus to the already low exports and imports. Though still afar from normal, this is a positive sign for the textile sector.
- The lockdown has disrupted the supply chain which has compelled garment manufacturers to look for local sourcing opportunities. Domestic suppliers can use this opportunity to establish themselves as permanent suppliers to Indian garment manufacturers.
- India is dependent on China for purified terephthalic acid (PTA) and polyester staple fiber (PSF), who is the 4th and 1st largest trading partner of India for both of these raw materials respectively.
Industry Overview
Demand Side Impact
- The stagnant supply chain has consequentially impacted the demand for the spring-summer season.
- Consumer sentiment is at a low as compared to normal circumstances. Ease in the lockdown regulations and gradual revival of the economy should drive consumer confidence and sentiment up.
- Dire fall in the global demand coupled with a ban on the export of critical raw material (non-woven fabric used to make masks) had a substantial impact on the exports. Now, the ban on these critical raw materials has been lifted.
Overall Impact on the Textile Sector
- India’s textile exports are expected to face demand shocks over the coming few quarters.
- The import price of man-made fiber rose due to the lockdown in China, resulting in the high price of domestic goods.
- According to CMAI apparel manufacturers reported an 84% drop in May 2020 sales. According to a KPMG report, apparel production was expected to decline by 10–12% through the second quarter.
- Cotton prices have taken a huge hit due to the pandemic that caused a steep decline in exports.
The Way Forward…
Now that economies around the world are slowly reviving will boost the recovery of the textile industry. The retail business is expected to pick up by quarter three, 2020. The revival of exports is dependent on how the US, UK and Europe economies recoup. The government’s vision 2024–25 for textile and apparel aims to achieve domestic sales of INR 350 billion and INR 300 billion of exports. Also, vision 2024–25 aims to attract FDIs (foreign direct investments) through making world-class textile mega parks which will also create 35 million jobs. Achieving this vision seems difficult due to the unanticipated occurrence of the pandemic.
