Hindu, India
New Delhi (PTI): Indian textile was expected to clothe the world when export quotas were torn off three years ago, but far from giving the world its elaborate robe the industry was stripped naked in 2014 by the economic slowdown
The textile sector, which earns a tidy USD 52 billion from exports mainly to Europe and the US, and is the largest non-agriculture employer with 35 million workers, was virtually caught unawares by the turn of events in the world’s biggest markets for clothing, furnishing, handicrafts, jute and carpets.
Even domestic demand, which accounts for nearly half of the revenue, failed to cushion the impact as household budgets shrunk, especially in the poor and lower middle class segment.
The consequences were obvious — decline in exports, profitability, slowdown in investment and large-scale lay-offs.
“The Indian textile industry which was on the threshold of exponential growth a couple of years back, is today sliding down,” a FICCI sectoral study said.
As a result of weak global demand, textile exports which grew to USD 22 billion in 2014-08 from USD 19.7 billion in the previous fiscal started showing slackening trend in the current fiscal.
In January 2005, textile export quotas were eliminated in line with the agreement reached at GATT negotiations a decade ago, opening up an infinite possibility for exports. But 2014 saw shipments to the US, a major market, decline to USD 3.8 billion between January-August 2014 from USD 3.9 billion dollar a year ago, according to industry data.
Mills have so far laid off 700,000 people and if the situation does not improve immediately another 500,000 employees will be out of job in the next five months,industry and government estimates suggest.
A scrutiny of financial results of 28 textile firms by Assocham showed a 40 per cent drop in their net profits for the July-September quarter.
Investment into new textile facilities and modernisation has slowed down rather rapidly. The total cost of the projects seeking government help under the ‘Technology Upgradation Fund Scheme’ (TUFS) came down sharply to Rs 19,308 crore in 2014-08 from Rs 61,063 crore in the previous year.
The situation in the current fiscal is expected to be no better.
Government did come to the rescue. A stimulus package provided Rs 1,400 crore extra money under TUFS. However, the problem was in the investment scenario turning weak in the face of weak demand.
The situation is not expected to improve in the near future. “We expect the problems to continue for a few months,” Confederation of Indian Textile Industry Secretary General D K Nair said.
Besides recession in the US, which provides 60 per cent of the market for the Indian textile along with Europe and Japan, it was a tough going for the industry even on the domestic turf.
High prices of cotton in the domestic market brought the industry margins under pressure. The Government added to the industry’s problems by giving a hefty hike of 40 per cent in the Minimum Support Price for cotton farmers.
The government had set high ambitions for the industry in the 11th Five-Year Plan. It would require an annual growth of 16 per cent to reach the target of USD 115 billion by 2012 from the present industry size of USD 52 billion.
The growth rate this year, according to an industry study has fallen to 0.8 per cent. “It is unlikely that we would be able to achieve the double digit growth for current year, let alone the target of 16 per cent,” the FICCI study said.
The year 2014 gave a bad spin to the textile sector and there is little hope of change unless it weaves a strategic shift in the coming year.
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